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STRATEGIC MANAGEMENT-History and Development

Until the 1940s, strategy was seen as primarily a matter for the military. Military history is filled with stories about strategy. Almost from the beginning of recorded time, leaders contemplating battle have devised offensive and counter-offensive moves for the purpose of defeating an enemy. The word strategy derives from the Greek for generalship, strategia, and entered the English vocabulary in 1688 asstrategie. According to James 1810 Military Dictionary, it differs from tactics, which are immediate measures in face of an enemy. Strategy concerns something done out of sight of an enemy. Its origins can be traced back to Sun Tzus The Art of Warfrom 500 BC.

Over the years, the practice of strategy has evolved through five phases (each phase generally involved the perceived failure of the previous phase):

Basic Financial Planning (Budgeting) Long-range Planning (Extrapolation) Strategic (Externally Oriented) Planning Strategic Management Complex Systems Strategy: Complex Static Systems or Emergence Complex Dynamic Systems or Strategic Balance

Basic Financial Planning (Budgeting)

James McKinsey (1889-1937), founder of the global management consultancy that bears his name, was a professor of cost accounting at the school of business at the University of Chicago. His most important publication, Budgetary Control (1922), is quoted as the start of the era of modern budgetary accounting.

Early efforts in corporate strategy were generally limited to the development of a budget, with managers realizing that there was a need to plan the allocation of funds. Later, in the first half of the 1900s, business managers expanded the budgeting process into the future. Budgeting and strategic changes (such as entering a new market) were synthesized into the extended budgeting process, so that the budget supported the strategic objectives of the firm. With the exception of the Great Depression, the competitive environment at this time was fairly stable and predictable.

Long-range Planning (Extrapolation)

Long-range Planning was simply an extension of one year financial planning into fiveyear budgets and detailed operating plans. It involved little or no consideration of social or political factors, assuming that markets would be relatively stable. Gradually, it developed to encompass issues of growth and diversification.

In the 1960s, George Steiner did much to focus business managers attention on strategic planning, bringing the issue of long-range planning to the forefront.Managerial Long-Range Planning, edited by Steiner focused upon the issue of corporate long-range planning. He gathered information about how different companies were using longrange plans in order to allocate resources and to plan for growth and diversification.

A number of other linear approaches also developed in the same time period, including game theory. Another development was operations research, an approach that focused upon the manipulation of models containing multiple variables. Both have made a contribution to the field of strategy.

Strategic (Externally Oriented) Planning

Strategic (Externally Oriented) Planning aimed to ensure that managers engaged in debate about strategic options before the budget was drawn up. Here the focus of strategy was in the business units (business strategy) rather than in the organization centre. The concept of business strategy started out as business policy, a term still in widespread use at business schools today. The word policy implies a hands -off, administrative, even intellectual approach rather than the implementation-focused approach that characterizes much of modern thinking on strategy. In the mid-1900s, business managers realized that external events were playing an increasingly important role in determining corporate performance. As a result, they began to look externally for significant drivers, such as economic forces, so that they could try to plan for discontinuities. This approach continued to find favor well into the 1970s.

While the theorists were arguing, one large US Company was quietly innovating. General Electric Co. (GE) had begun to develop the concept of strategic business units (SBUs) in the 1950s. The basic idea-now largely accepted as the normal and obvious way of going about things-was that strategy should be set within the context of individual businesses which had clearly defined products and markets. Each of these businesses would be responsible for its own profits and development, under general guidance from headquarters.

The evolution of strategy began in the early 1960s, when a flurry of authoritative texts suddenly turned strategic planning from an issue of vague academic interest into an important concern for practicing managers. Prior to this strategy wasnt part of the normal executive vocabulary.

Alfred Chandler (1918-) Influential figure in both strategy and business structureStrauss Professor of Business History at Harvard since 1971.

Chandler talks about the development of the management of a large company from history; in particular from the mid nineteenth century to the end of the First World War (what he calls the formative years of modern capitalism). During this period, the typical entrepreneurial or family firm gave way to larger organizations containing multiple units. A new form of management was needed because the owner-manager could not be everywhere at once. In addition, a new breed of manager was needed to operate in this environment the salaried professional.

He advised splitting the functions of strategic thinking and line management. In Chandlers analysis, the effective organization now separates strategy and day -to-day operations. Strategy becomes the responsibility of managers at headquarters, leaving the unit managers to concentrate on the here and now in decentralized units. In effect, he was advising creating a line management who would carry out plans developed by a more serious staff function elsewhere.

His influential book Strategy and Structure was published in 1962, appealing to many large companies that were having difficulty in coping with their size. In recent years it has come under heavy attack from critics, who maintain that strategy must be a line responsibility, decided as close as possible

John Gardners Self-Renewal, published in 1964, which pointed out that organizations constantly need to reassess themselves, had the earliest real impact on managers. Like people, they need to keep renewing their skills and abilities something they can only do effectively through careful planning.

Kirby Warren at Harvard looked in depth at what happened in a small number of companies to see what worked well and what didnt. In several companies for exampl e, he found that the managers confused the strategic plan with its components in particular, the marketing plan was often assumed to be the same thing as the overall corporate plan.

Wickham Skinner (1924-) who was based at Harvard since 1960, pointed out that an excessive focus on marketing Planning frequently led companies to forget about manufacturing needs until late in the day, when there was little room for manoeuvre.

Skinner argued for a clear manufacturing strategy to proceed in parallel with the marketing strategy. In many ways he was ahead of his time, for the concept of technology strategy or manufacturing strategy had only begun to take root in the 1980s and many manufacturing companies still have no one in charge of this aspect of their business.

One particularly influential idea from skinner was the focused factory. He demonstrated that it was not normally possible for a production unit to focus on more than one style of manufacturing. Even if the same machines were used to produce basically similar products, if those products had very different customer demands that required a different manner of working, the factory would not be successful. For example, trying to produce equipment for the consumer market, where a certain error rate in production was compensated for by higher volume sales at a lower price, was incompatible with producing 100 per cent perfect product for the military. The most likely outcome was a compromise that satisfies no one.

Paul Lawrence and Jay Lorsch, also from Harvard, put forth their contingency theory of organizations. They argued that every organization is composed of multiple paradoxes. On the one hand, each department or unit has its own objectives and environment. It responds to those in its own way, both in terms of how it is structured, the time horizons people assume, the formality or informality of how it goes about its tasks and so on. All these factors contribute towards what they call differentiation. At the same time each unit needs to work with others in pursuit of common goals. That requires a certain amount of integration, to ensure that they are all working with rather than against each other. In their studies of US firms in a variety of manufacturing industries, they found that companies with a high level of differentiation could also have a high level of integration. The reason was simple; the greater the differentiation, the more potential for conflict between departments and therefore the greater the need for mechanisms to help them work together. Their work forced many managers to understand that organizations were not fixed; that strategy and planning had to be adapted to each segment of the environment with which they dealt.

Igor Ansoff (1918-) through his unstintingly serious, analytical and complex,Corporate Strategy, published in 1965, had a highly significant impact on the business world. It propelled consideration of strategy into a new dimension. It was Ansoff who introduced the term strategic management into the business vocabulary.

Ansoffs sub-title was An Analytical Approach to Business Policy for Growth and Expansion. The end product of strategic decisions is deceptively simple; a combination of products and markets is selected for the firm. This combination is arrived at by addition of new product-markets, divestment from some old ones, and expansion of the present position, writes Ansoff. While the end product was simple, the processes and decisions which led to the result produced a labyrinth followed only by the most dedicated of managers. Analysis and in particular gap analysis (the gap between where you are now and where you want to be) was the key to unlocking strategy.

The book also brought the concept of synergy to a wide audience for the first time. In Ansoffs original creation it was simply summed up as the 2+2=5 effect. In his later books, Ansoff refined his definition of synergy to any effect which can produce a combined return on the firms resources greater than the sum of its parts.

While Corporate Strategy was a notable book for its time, it produced what Ansoff himself labeled paralysis by analysis; repeatedly making strategic plans which remained unimplemented.

Reinforced by his conviction that strategy was a valid, if incomplete, concept, Ansoff followed up Corporate Strategy with Strategic Management (1979) and Implanting Strategic Management (1984). His other books include Business Strategy (1969),Acquisition Behavior in the US Manufacturing Industry, 1948-1965 (1971), From Strategic Planning to Strategic Management (1974), and The New Corporate Strategy (1988).

Implanting Strategic Management, co-written with Edward McDonnell, records much of the research conducted by Ansoff and his associates and reveals a number of ingenious aspects of the Ansoff model. These include his approach to using incremental implementation for managing resistance to change, product portfolio analysis, and issue management systems.

The Problem with Strategic Planning (Analysis): The fuel for the modern growth in interest in all things strategic has been analysis. While analysis has been the

watchword, data has been the password. Managers have assumed that anything which could not be analyzed could not be managed. The belief in analysis is part of a search for a logical commercial regime, a system of management which will, under any circumstances, produce a successful result. Indeed, all the analysis in the world can lead to decisions which are plainly wrong. IBM had all the data about its markets, yet reached the wrong conclusions.

There are two basic problems with the reliance on analysis. First, it is all technique. The second problem is more fundamental. Analysis produces a self-increasing loop. The belief is that more and more analysis will bring safer and safer decisions. The traditional view is that strategy is concerned with making predictions based on analysis. Predictions, and the analysis which forms them, lead to security. The bottom line is not expansion, future growth or increased profitability-it is survival. The assumption is that growth and increased profits will naturally follow. If, by using strategy, we can increase our chances of predicting successful methods, then our successful methods will lead us to survival and perhaps even improvement. So, strategy is to do with getting it right or, as the more competitive would say, winning. Of course it is possible to win battles and lose wars and so strategy has also grown up in the context of linking together a series of actions with some longer-term goals or aims.

This was all very well in the 1960s and for much of the 1970s. Predictions and strategies were formed with confidence and optimism (though they were not necessarily implemented with such sureness). Security could be found. The business environment appeared to be reassuringly stable. Objectives could be set and strategies developed to meet them in the knowledge that the overriding objective would not change.

Such an approach, identifying a target and developing strategies to achieve it, became known as Management by Objectives (MBO).

Under MBO, strategy formulation was seen as a conscious, rational process. MBO ensured that the plan was carried out. The overall process was heavily logical and, indeed, any other approach (such as an emotional one) was regarded as distinctly inappropriate. The thought process was backed with hard data. There was a belief that effective analysis produced a single, right answer; a clear plan was possible and, once it was made explicit, would need to be followed through exactly and precisely.

In practice, the MBO approach demanded too much data. It became overly complex and also relied too heavily on the past to predict the future. The entire system was ineffective at handling, encouraging, or adapting to change. MBO simplified management to a question of reaching A from B using as direct a route as possible. Under MBO, the ends justified the means. The managerial equivalent of highways were developed in order to reach objectives quickly with the minimum hindrance from outside forces.

Henry Mintzbergs book The Rise and Fall of Strategic Planning was first published in 1994. The confusion of means and ends characterizes our age, Henry Mintzberg observes and, today, the highways are likely to be gridlocked. When the highways are blocked managers are left to negotiate minor country roads to reach their objectives. And then comes the final confusion: the destination is likely to have changed during the journey. Equally, while MBO sought to narrow objectives and ignore all other forces, success (the objective) is now less easy to identify. Todays measurements of success can include everything from environmental performance to meeting equal opportunities targets. Success has expanded beyond the bottomline.

Strategic Planning to Strategic Management

Strategic Planning to Strategic Management: Strategic planning was a plausible invention and received an enthusiastic reception from the business community. But subsequent experience with strategic planning led to mixed results. In a minority of firms, strategic planning restored their profitability and became an established part of the management process. However, a substantial majority encountered a phenomenon, which was named paralysis by analysis: strategic plans were made but remained unimplemented, and profits/growth continued to stagnate. Claims were increasingly made by practitioners and some academics that strategic planning did not contribute to the profitability of firms. In the face of these claims, Ansoff and several of his colleagues at Vanderbilt University undertook a four-year research study to determine whether, when paralysis by analysis is overcome, strategic planning increased profitability of firms.

Ansoff looked again at his entire theory. His logic was impressively simple either strategic planning was a bad idea, or it was part of a broader concept which was not fully developed and needed to be enhanced in order to make strategic planning effective. An early fundamental answer perceived by Ansoff was that strategic planning is an incomplete instrument for managing change, not unlike an automobile with an engine but no steering wheel to convert the engines energy into movement.

Characteristically, he sought the answer in extensive research. He examined acquisitions by American companies between 1948 and 1968 and concluded that acquisitions which were based upon an articulated strategy fared considerably better than those which were opportunistic decisions. The result of the research was a book titled Acquisition Behavior of US Manufacturing Firms, 1945-1963.

In 1972 Ansoff published the concept under the name of Strategic Managementthrough a pioneering paper titled The Concept of Strategic Management, which was ultimately to earn him the title of the father of strategic management. The paper asserted the importance of strategic planning as a major pillar of strategic management but added a second pillar the capability of a firm to convert written plans into market reality. The third pillar- the skill in managing resistance to change was to be added in the 1980s.

Ansoff obtained sponsorship from IBM and General Electric for the first International Conference on Strategic Management, which was held in Vanderbilt in 1973 and resulted in his third book, From Strategic Planning to Strategic Management.

The complete concept of strategic management embraces a combination of strategic planning, planning of organizational capability and effective management of resistance to change, typically caused by strategic planning. Ansoff says that strategic management is a comprehensive procedure which starts with strategic diagnosis and guides a firm through a series of additional steps which culminate in new products, markets, and technologies, as well as new capabilities. Strategic Management aimed to give people at all levels the tools and support they needed to manage strategic change. Its focus was no longer primarily external, but equally internal how can the organization seize and maintain strategic advantage by using the combined efforts of the people that work in it?

Between 1974 and 1979 Ansoff developed a theory which embraces not only business firms but other environment-serving organizations. The resulting book titled Strategic Management, was published in 1979.

Self-confirming Theories: In the 1980s, there was a renewed interest in discovering ways of dealing with an increasingly complex and changing environment. It was during this time that the practice of strategy began to move toward a metaphorical application of an old idea. For many years, management theorists had borrowed the ideas of an economic theory commonly referred to as equilibrium theory, or equilibrium systems theory, as a basis for developing management theory. Basically, the concept was developed around the idea of linearity (and, to some extent, simplicity). Self-confirming theories of strategy require the strategist to assume that what the firm has done in the past will be done in the future. In effect, executives confirm that past strategy has been appropriate by adopting it repeatedly over time.

Self-confirming theories may be recognized by their historic-simple frame and mental models. Such theories use terms such as mission, core competencies, competitive advantage, and sustainable competitive advantage. They are founded in the theory of comparative advantage developed by economists David Ricardo and Adam Smith. The theory of comparative advantage, which suggests that some countries have unique assets, has become the basis for contemporary strategy. Strategists modified the idea and called it competitive advantage. If it chooses to use that approach, a firm needs to identify its core competencies, competitive advantage, and then convert that identification to a mission. In principle, the purpose of the mission statement is to keep the firm focused upon its unique area of competitive advantage. Further, the mission is supposed to set boundaries and to keep it in the box. Generally, self-confirming theories force the assumption of a linear mental model, since it is historic (including present) competencies or resources that provide the constructs for future strategy.

Thousands of articles and books have been written on the development of equilibriumbased strategy. The equilibrium-based strategic model involves a succession of steps that are designed to keep the firm focused upon its historic competencies. Out of that concept ideas such as SWOT analysis (strengths, weaknesses, opportunities, and threats) and five forces analysis were developed. The latter is dealt with in Michael Porters 1985 book Competitive Strategy. In most cases, the difference between one key thinker and another is minor at best, but

Michael Porter of Harvard Business School is perhaps the best known of all the strategy theorists. He has generally been more prolific than the rest. Porter has been responsible for the writing of numerous books and articles that have been widely accepted in the field. He has been especially involved in the creation or popularization of a number of tools that have been widely used in the discipline.

Porters first book for practicing managers, Competitive Strategy: Techniques for Analyzing Industries and Competitors, was first published in 1980. Drawing heavily on industrial economics (a field of study that tries to explain industrial performance through economics), he was trying to take these basic notions and create a much richer, more complex theory, much closer to the reality of competition. The book defines five competitive forces that determine industry profitability potential entrants, buyers (customers), suppliers, substitutes, and competitors within the industry. Each of these can exert power to drive margins down. The attractiveness of an industry depends on how strong each of these influences is. Competitive Strategy brought together in a rational and readily understandable manner both existing and new concepts to form a coherent framework for analyzing the competitive environment.

The realization that he had not been focusing on choice of competitive positioning, this work led Porter in turn to his interests in the concept of competitive advantage, the theme of his next major book, Competitive Advantage: Creating and Sustaining Superior Performance (1985). He sought a middle ground between the two polarized approaches then accepted-on the one hand, that competitive advantage was achieved by organizations adapting to their particular circumstances; and, on the other, that competitive advantage was based on the simple principle that the more in-tune and aware of a market a company is, the more competitive it can be (through lower prices and increased market share). From analysis of a number of companies, he developed generic strategies: Porter contends that there are three ways by which companies can gain competitive advantage:

By becoming the lowest cost producer in a given market By being a differentiated producer (offering something extra or special to charge a premium price) Or by being a focused producer (achieving dominance in a niche market)

Porter insisted that though the generic strategies existed, it was up to each organization to carefully select which were most appropriate to them and at which particular time. The generic strategies are backed by five competitive forces which are then applied to five different kinds of industries (fragmented, emerging, mature, declining, and global.

To examine an organizations internal competitive ness, Porter advocates the use of a value chain analysis of a companys internal processes and the interactions between different elements of the organization to determine how and where value is added. A systematic way of examining all the activities a firm performs and how they interact is essential for analyzing the sources of competitive advantage. The value chain disaggregates a firm into its strategically relevant activities in order to understand the behavior of costs and the existing and potential sources of differentiation. A firm gains competitive advantage by performing these strategically important activities more cheaply or better than its competitors. Each of these activities can be used to gain competitive advantage on its own or together with other strategically important activities. Here, the concept of linkages (relationships between the way one value activity is performed and the cost or performance of another) becomes relevant. These linkages need not be internal they can equally well be with suppliers and customers. Viewing every thing a company does in terms of its overall competitiveness, argues Porter, is a crucial step to becoming more competitive.

This has led to the myth of sustainable competitive advantage. In reality, any competitive advantage is short-lived. If a company raises its quality standards and increases profits as a result, its competitors will follow. If a company says that it is reengineering, its competitors will claim to be reengineering more successfully. Businesses are quick to copy, mimic, pretend and, even, steal. The logical and distressing conclusion is that an organization has to be continuously developing new forms of competitive advantage. It must move on all the time. If it stands still, competitive advantage will evaporate before its very eyes and competitors will pass.

The dangers of developing continuously are that it generates, and relies on, a climate of uncertainty. The company also runs the risk of fighting on too many fronts. This is often manifested in a huge number of improvement programs in various parts of the organization which give the impression of moving forward, but are often simply cosmetic.

Constantly evolving and developing strategy is labeled strategic innovation. The mistake is to assume that strategic innovation calls for radical and continual major surgery on all corporate arteries. Continuous small changes across an organization make a difference. We did not seek to be 100 percent better at anything. We seek to be one percent better at 100 things, says SASs Jan Carlzon.

Porter would suggest that his five forces model and SWOT allow for nonlinear analysis, but most would agree that the overlaying of a linear mental model (selfconfirming theory) on top of any nonlinear analysis would render any such argument questionable.

Jay Barney is often credited with popularizing an adaptation of the equilibrium-based model, called the resource view of the firm. This particular view that a firms resources must also be analyzed and understood in developing corporate strategy might simply be viewed as an addition to the traditional self-confirming theories.

The equilibrium-based strategic model involves a succession of steps that are designed to keep the firm in the box or focused upon its historic competencies. Some might argue that the use of SWOT analysis avoids this problem, since it analyzes the firms strengths and weaknesses. That generally does not hold true, however, because the assumption that the firms current/historic strengths will serve the company well in the future tends to override any attempts to engage in discontinuous change.

From the early 1980s to the mid-1900s, approaches based on the equilibrium theory repeatedly failed, and the level of dissatisfaction with this particular approach grew. The new global competitive environment that emerged in the late 1980s demanded a solution. TQM gained a great deal of popularity through the early 1990s, but it soon fell far short of being a holistic solution. The generally accepted failure rate for TQM initiatives during this period was over 80%. Failure to understand the critical role that quality plays in corporate success can be disastrous, but TQM cannot replace strategy, and it is wrong to believe that quality is all a company needs to be competitive. Quality is simply the price of admission to play the game. Once in the game, it is strategy that must drive organizational activities.

In the early 1990s, major consulting firms were overwhelmed with clients who wanted to use process re-engineering as a solution for everything from sagging profits to product development cycles. Like TQM, process re-engineering failed to deliver, with a failure rate of around 70%. As a result of these failures, many people began to suggest that the real issue was change and the usual preponderance of books soon hit the market. However, once again, the general view was that the majority of change initiatives added little value to the bottom line.

Discussions with a number of senior executives reveal that most people have given up on the traditional strategic approach, which is based on mission statements and core competencies. Interestingly, though, most of their companies still use that traditional approach. It is important to understand that self-confirming theories of strategy remain the most frequently used at this time, with well over 90% of all companies making use of the approach, or of some hybrid that is based upon it. Why do people continue to use the approach if they no longer trust it? There are a number of answers to that question.

First, most undergraduate and graduate schools still teach that approach, almost exclusively. Second, the approach is easy to learn and understand. Third, it is comforting, because it focuses upon what some have called self -confirming theory it confirms that what we have done in the past is good, since we are going to continue to do in the future what we have done in the past (i.e. our future strategy will be based upon our historic competencies).

As early as 1989, Rosabeth Moss Kanter was pointing out, in When Giants Learn to Dance, the problems with another historic-linear approach, which she refers to as excellence. People tend to love the idea of excellence. It make s for a great book title, whether it involves searching for excellence or building something to last. Alongside these books were the 7 things that companies do titles, which again focused upon excellence in practice.

Benchmarking is a variant of the excellence practice. The underlying mental model suggests that something someone did somewhere at some point in time will work for your firm where it is today (and tomorrow). The reality is that it might work but it might not. Therein lies the problem with linear (simple) historic mental models.

Almost without exception, the companies featured in the excellence books encountered problems within a few years of the books publication. This is true even for James C. Collins and Jerry I Porras Built To Last.

As a result of the apparent failure of the self -confirming theories, strategy theorists have searched for alternatives.

The Reality of Competitive Environments:The new competitive world has moved from a linear (or highly predictable, somewhat simple) state to a non-linear (or highly uncertain, complex) state. That does not mean that nothing will continue to be predictable. It means that in the future historic relationships will most likely not be the same as they were in the past.

In 1980, Ansoff published a paper which represented another step in the development of practical strategic management which concerned the development of practical tools for managing adaptation of firms to turbulent environments. The paper, called Strategic Issue Management, presented a way of adapting a firm to the environment, when environmental change develops so fast that strategic planning becomes too slow to produce timely responses to surprising threats and opportunities.

From 1991 to 2001, rapid change and high levels of complexity have characterized the global competitive environment. As the rate of environmental change accelerates, and the level of complexity rises, the rules of the game change. Such changes mean that the firm must change in harmony with the environment. If it does not, ultimately the environment will eliminate it. For the company that does not change in harmony with the environment, the result is deterioration and, perhaps, demise.

Companies are complex systems operating within complex dynamic systems. In every case, the complexity as well as the rate of system change will be different at different points of time. There are a number of implications for this reality.

Simple-historic or simple-linear strategy is insufficient to prepare a firm for environments that involve varying levels of complexity and rates of change.

As a complex system, every aspect off the firm (not just its strategies) must be balanced with the future environment if the firm is to maximize performance.

Imbalances between the firm and the environment result in diminished performance, or in some cases, the demise of the firm.

Put simply, complex environmental systems (the competitive environment) require complex mental models of strategy if the firm is to succeed. The use of linear mental models in environments of varying complexity and rate of change is a prescription for failure.

Henry Mintzberg has famously coined the term crafting strategy, whereby strategy is created as deliberately, delicately, and dangerously as a potter making a pot. To Mintzberg strategy is more likely to emerge, through a kind of organizational osmosis, than be produced by a group of strategists sitting round a table believeing they can predict the future.

Mintzberg argues that intuition is the soft underbelly of management and that strategy has set out to provide uniformity and formality when none can be created.

Another fatal flaw in the conventional view of strategy is that it tended to separate the skills required to develop the strategy in the first place (analytical) from those needed to achieve its objectives in reality (practical).

Mintzberg argues the case for what he labels strategic programming. His view is that strategy has for too long been housed in ivory towers built from corporate data and analysis. It has become distant from reality, when to have any viable commercial life strategy needs to become completely immersed in reality.

In an era of constant and unpredictable change, the practical usefulness of strategy is increasingly questioned. The skeptics argue that it is all well and good to come up with a brilliantly formulated strategy, but quite another to implement it. By the time implementation begins, the business environment is liable to have changed and be in the process of changing even further.

Mintzbergs most recent work is probably his most controversial. Strategy is not the consequence of planning but the opposite: its starting point, he says countering the carefully wrought arguments of strategists, from Igor Ansoff in the 1960s to the Boston Consulting Group in the 1970s and Michael Porter in the 1980s.The Rise and Fall of Strategic Planning is a Masterly and painstaking deconstruction of central pillars of management theory.

The divide between analysis and practice is patently artificial. Strategy does not stop and start, it is a continuous process of redefinition and implementation. In his book, The Mind of the Strategist, the Japanese strategic thinker Kenichi Ohmaesays: In st rategic thinking, one first seeks a clear understanding of the particular character of each element of a situation and then makes the fullest possible use of human brain power to restructure the elements in the most advantageous way. Phenomena and events in the real world do not always fit a linear model. Hence the most reliable means of dissecting a situation into its constituent parts and reassembling them in the desired pattern is not a step-by-step methodology such as systems analysis. Rather, it is that ultimate nonlinear thinking tool, the human brain. True strategic thinking thus contrasts sharply with the conventional mechanical systems approach based on linear thinking. But it also contrasts with the approach that stakes everything on intuition, reaching conclusions without any real breakdown or analysis.

When future could be expected to follow neat linear patterns, strategy had a clear place in the order of things. Organizations are increasingly aware that, as they move forward, they are not going to do so in a straight unswerving line. The important ability now is to be able to hold on to a general direction rather than to slavishly follow a predetermined path. Now, the neatness is being upset, new perspectives are necessary. The new emphasis is on the process of strategy as well as the output. Such flexibility demands a broader perspective of the organizations activities and direction. This requires a stronger awareness of the links between strategy, change, team-working, and learning.

Strategy is as essential today as it ever was. But, equally, understanding its full richness and complexity remains a formidable task.

Kenichi Ohmae argues that an effective strategic plan takes account of three main players the company, the customer, and the competition each exerting their own influence. The strategy that ignores competitive reaction is flawed; so is the strategy that does not take into account sufficiently how the customer will react; and so, of course, is the strategic plan that does not explore fully the organizations capacity to implement it.

Kenichi Ohmae says that a good business strategy is one, by which a company can gain significant ground on its competitors at an acceptable cost to itself. He believes there are four principal ways of doing this:

Focus on the key factors for success (KFSs). Ohmae argues that certain functional or operating areas within every business are more critical for success in that particular business environment than others. If you concentrate effort into these areas and your competitors do not, this is a source of competitive advantage. The problem, of course, is identifying what these key factors for success are. Build on relative superiority. When all competitors are seeking to compete on the KFSs, a company can exploit any differences in competitive conditions. For example, it can make use of technology or sales networks not in direct competition with its rivals. Pursue aggressive initiatives. Frequently, the only way to win against a much larger, entrenched competitor is to upset the competitive environment, by undermining the value of its KFSs changing the rules of the game by introducing new KFSs. Utilizing strategic degrees of freedom. By this tautological phrase, Ohmae means that the company can focus on innovation in areas which are untouched by competitors. In each of these four methods, the principal concern is to avoid doing the same thing, on the same battle-ground, as the competition, Ohmae explains.

Kathryn Rudie Harrigans first book, Strategies for Declining Businesses focused on declining businesses. Harrigan believes there is a life-cycle for businesses and they need to revitalize themselves constantly to prevent decline. From declining businesses,

Harrigan moved on to the subject of vertical integration and the development of strategies to deal with it. A central premise of the framework she developed was that, as firms strived to increase their control over supply and distribution activities, they also increased their ultimate strategic inflexibility (by increasing their exit barriers). In search of more flexible approaches she carried out lengthy research into joint ventures. Despite their boom, Harrigans research showed that between 1924 and 1985 the average success rate for joint ventures was only 46 per cent and the average life span a meager three and a half years. In her two books on joint ventures, Harrison argued they will become a key element in competitive strategy. The reasons she gave for this were: economic deregulation, technological change, increasing capital requirements in connection with development of new products, increasing globalization of markets.

She predicted:

One-on-one competition will be replaced by competition among constellations of firms that routinely venture together. Teams of co-operating firms seeking each other out like favorite dancing partners will soon replace many current industry structures where firms stand alone. To cope with these changes, managers must learn how to co-operate, as well as compete, effectively. Harrigans later work focused on mature businesses. Managing Maturing Businesses (1988) examined the second half of a businesss life or, as it is more dramatically put, the endgame. She has coined the phrase The last iceman always makes money, which she explains as The last surviving player makes money serving the last bit of demand, when the competitors drop away. The importance of her work in this area was given credence by the fact that over two-thirds of the industries within mature economies were experiencing slow growth or negative growth in demand for their products.

Ameliorating the pain and avoiding premature death have been the motivating factors of Harrigans work. Harrigans argument is that endgame can be highly pro fitable if companies adopt a coherent strategy sufficiently early. The strategic options are:

Divest now the first company out usually gets the highest price; later leavers may not get anything. Last iceman focusing on customer niches which will continue long-term and will be prepared to pay a premium. Selective shrinking taking the profitable high ground and leaving the less profitable low ground to the competitors. Milking the business the last option, but none the less a practical alternative in many situations. Complex Systems Strategy

Complexity-based approaches or complex adaptive systems, were developed in response to the apparent failure of equilibrium-based approaches. Complexity-based thinkers will fall into a number of different camps. The majority believe that the environment must be understood in terms of its complexity, chaos, and ecological constructs. This group subscribes to the Darwinian hypotheses (upward evolution of a system) as a metaphor for the business environment. This kind of thinking has resulted in the idea of self-organizing companies.

The complexity group falls into two categories. One might be called a pure complexity based group, the other a hybrid. In the case of the former, theorists generally apply the concept of emergence to every situation. According to this group predictive modeling is rendered useless by the chaotic nature of the environment. They would suggest that any attempt to plan for the future is pointless.

The hybrid group also assumes that the Darwinian hypotheses may be used as a metaphor for business systems. This particular group of thought is based upon the idea that the firm may compete on the edge of chaos, that is in a state in which the system is complex adaptive, but at the same time with a minimal level of predictability in the system (Brown and Eisenhardts Competing on the Edge). This group of thinkers have combined the emergent (complex-historic) approach with the extrapolation (simplefuture)approach.

Emergence

The emergence camp is divided into at least two or three distinctive groups. Emergence-based theorists begin with the idea of complex systems and chaos theory. Some suggest that the ability to deal with complexity on a futuristic basis is impossible. Others suggest that it is possible to understand some aspects of futuristic systems. A third group imposes naturalistic ecological presuppositions in its theory.

Ralph Stacey and Henry Mintzberg tend to hold to the view that it is simply not possible to consider future complex environments. As a result they suggest that the strategist must wait for events to occur, or emerge, then develop strategy. This approach of incrementalism involves the after the fact development of strategy for discontinuous events. Mintzberg suggests that, as discontinuous events occur, the firm should dynamically craft strategy.Stacey generally agrees with Mintzberg, but in his book Managing The Unknowable, he additionally suggests that it is possible to create organizations that are designed to deal with ambiguity and complexity.

Others involve themselves in apparently self-defeating arguments. In The Fifth Discipline, Peter Senge advances the idea of systems thinking and suggests that it is possible to observe complex systems and make reliable inferences about such systems. On the other hand, in the multi-author work The Dance of Change, he tends to take a purely Darwinian emergence view.

The emergent or complex-historic group of strategists is by far the fastest-growing group in the field. As those who see the failure of self-confirming theories seek alternatives, the focus on complexity by the emergent group seems to make a lot of sense.

Chaos and Complexity:Around the mid-1950s, there had been a certain amount of investigation into the idea of cybernetics, or the study of processes. That led some people to think about the competitive environment in a very different way. Chaos and complexity theory were introduced. By the early 1990s, complexity theory had taken on a life of its own. At about the same time, the idea of systems thinking was popularized, particularly, in Peter Senges 1990 book The Fifth Discipline.

The period was characterized by a blending of disciplines, including natural science, social sciences, and business. A number of business theorists moved on from the metaphor of chaos theory in business to complexity theory. Chaos theory had dealt with the unpredictable processes that were observable in science. Those who moved on to complexity theory added an interesting twist to the basic idea of complexity. Complex systems thinking has to do with the fact that the global system or environment is made up of a limitless number of other systems. Theorists hypothesize that complex systems may behave in much the same way as the molecules in a glass of water, which interact randomly.

Systems Thinking:Another approach for dealing with complex environments is called systems thinking. Proponents of systems thinking believe that it is possible to consider complex issues and to make reasonable inferences about the outcomes of such complex systems. Systems thinking has been widely discussed in corporate circles, but few companies actually utilize the approach, especially at the senior executive level where it could be most beneficial. Those few leaders who have the intuitive ability to think in terms of complex systems, are and will continue to be, highly successful.

Darwinian Theory:Alongside this hypothesis relating to complex systems, the idea of using Darwins theory of evolution as a metaphor for complexity was developed. Charles Darwins concept focused upon two ideas: first, the idea of natural selection, or the survival of the fittest; second, the idea of evolution. His concept of evolution was based upon the hypothesis that matter was constantly in a state of moving from a lower level of complexity to a higher level of complexity. In his view, this accounted for the similarities between monkeys, apes, and the different races of humans.

Scientific evidence generally refutes these particular views (along with others held by Darwin), but Darwins hypothesis has none the less been adapted metaphorically to complexity theory as it is applied in business. Those who subscribe to the theory say that the evolution (from lower complexity to higher complexity) that occurs naturally in nature must apply equally to businesses. Complexity management theorists go on to suggest that one of the goals of every manager should be to allow the business to emulate nature by self-organizing.

This theme is clearly revealed in Peter Senges 1999 book The Dance of Change. In one article in the book, entitled The leadership of profound change -toward an ecology of leadership, Senge suggests that leaders need to understand more about nature and to manage with that in mind. The CEO, according to Senge, is not the solution to driving meaningful change in the organization.

In most cases, the complexity-based theorists assume the Darwinian hypotheses (upward mutation or evolution of complex natural systems) as a metaphor for management and strategy theory. This idea is developed in what is called self organization. It is also an integral part of the complexity theorists response to the linear economic model referred to as equilibrium theory, which is called complex adaptive systems theory.

The evidence clearly invalidates the Darwinian hypotheses. Complex dynamic systems as an idea is finding support not only as a way of descr ibing the natural environment, but also as a reasonable metaphor for developing management and strategy theory. This approach deals with complex systems without the prepositional fallacies related to complex adaptive systems theory.

Shona L. Brown and Kathleen M. EisenhardtBrown and Eisenhardts bookCompeting on the Edge (1998) displays their work as somewhat of a hybrid of the complex adaptive systems approach (including the Darwinian hypotheses) and the self-confirming schools of thought. In essence, Brown and Eisenhardt suggest that the firm is competing in complex environments, and thus must deal with high levels of uncertainty. Their view is that the firm is constantly in a process of changing its competencies. There is some dissonance between their adoption of competencies and their prescriptions for dynamic corporate strategy.

Henry Mintzberg The work of Canadian, Henry Mintzberg counters much of the detailed rationalism of other major thinkers. He falls in the complex-historic (emergence) category of strategists, although, unlike most in that camp, he does not appear to have adopted the Darwinian metaphor. Mintzberg believes in incremental responses to changes as they emerge in the environment. It is clear that he holds to the idea of a complex environment, yet he also seems to believe that it is not possible to anticipate or prepare proactively for discontinuous events. His views are the antitheses of Ansoffs.

Ralph Stacey His book Managing the Unknowable (1992) was really ahead of the curve among the work of the proponents of complex adaptive systems. Staceys work differs from that of many of the others in that particular school, since he suggests that companies need to prepare proactively for complexity.

Complex Dynamic Systems

The application of a Darwinian-based theory of complexity has resulted in an alternative to the equilibrium theory of economics complex adaptive systems which again, proposes that the economic system is characterized by progressive upward evolution.

The positive aspect of the theory is that it turns managers toward thinking about complex systems. There is no doubt that linear thinking (equilibrium-based management theory) can damage a company, but the absence of scientific support for adaptive systems (in either nature or in business) may also be problematic when trying to build corporate strategy.

A number of people are now using the idea of complex dynamic systems as a way to think about the competitive environment. Moving from the Darwinian presupposition of evolution to a recognition of the complex nature of the environment may present a better opportunity for the corporate strategist.

There is currently a clear trend toward complexity-based corporate strategy. Emerging research supports the fact that moving from a linear to a non-linear complex mental model of the environment will help managers to lead a more profitable organization.

C. K. Prahalad and Gary Hamel Their book Competing for the Future was first published in 1994. Their work has gone through a number of cycles, or changes. Early on, it seemed to focus on self-confirming theories. However, they were quick to comprehend the apparent failure of that model, and began to move more toward a complexity-based

model. In their later works they have focused on anticipating the complex nature of the future environment. At the same time they are not proponents of strategy based on complex adaptive systems (the Darwinian hypotheses). A very positive aspect of their work is their emphasis on proactive strategies for dealing with future uncertainty.

The phrase core competencies has now entered t he language of management. In laymans terms, core competencies are what a company excels at. Gary Hamel and C K Prahalad define core competencies as the skills that enable a firm to develop a fundamental customer benefit. They argue that strategic plann ing is neither radical enough nor sufficiently long-term in perspective. Instead its aim remains incremental improvement. In contrast, they advocate crafting strategic architecture. The phraseology is unwieldy, but means basically that organizations should concentrate on rewriting the rules of their industry and creating a new competitive industry.

Richard DAveni The best-known work of Richard DAveni of Dartmouth College isHypercompetition (1994), in which he overtly takes on the traditional self-confirming strategic approaches. Based upon his observations of the real world, the book concludes that the world is no longer linear, and does not reward those who use linear approaches to create corporate strategy. In its place, he suggests, the planner needs to consider a new approach. In assessing the new corporate world, he makes a number of insightful observations in Hypercompetition:

Firms must destroy their competitive advantage to gain advantage..

Entry barriers work only if others respect them.

A logical approach is to be unpredictable and irrational.

Traditional long-term planning does not prepare for the short term.

Attacking competitors weaknesses can be a mistake. Traditional approaches such as SWOT analysis may not work in a hypercompetitive environment.

Companies have to compete to win, but competing makes winning more difficult.

DAveni builds the case for a complex environment and the need to change the organization continually in response to the environment, then proposes an answer to his argument about the need for a dynamic theory: the 7 -S approach.

Superior stakeholder satisfaction.

Strategic soothsaying.

Positioning for speed.

Shifting the rules of the game.

Signaling strategic intent.

Simultaneous and sequential strategic thrusts

At the heart DAvenis ideas is his conclusion that companies need to be focused upon disrupting the market. He suggests that there are three critical factors that enable a firm to deliver sustainable disruption in the market:

A vision for disruption. Capabilities for disruption (the organization). Product/market tactics used to deliver disruptions.

There are a number of similarities between the work of Ansoff and tha t of DAveni. Both suggest that the environment involves some level of complexity and rate of change. Both propose a contingency theory approach that is, the organization must be designed to respond to the present and future environment. Both believe that the environment of the 1990s began a new period of highly turbulent, unpredictable, changing environments.

Hybrid Systems:One of the more questionable adaptations of the various theories comes from those who attempt to combine complex adaptive systems and equilibriumbased theory. These theorists suggest that strategists should apply complex adaptive systems approaches to their strategy, while at the same time developing historic (or even new) competencies. Clearly there are problems with this combination.

Observing the global environment, and accepting the fact that there are two environmental issues that strategists must address complexity and rate of change it is clear that an organization must be continually changing in nonlinear terms both in speed and in complexity. Rosabeth Moss Kanters useful idea of contingency theory (presented in When Giants Learn to Dance) rightly suggests that the organization must be able to respond contingently to future changes in the environment. Her approach is similar to W. R. Ashbys requisite variety theorem explained in his Introduction to Cybernetics.

The modified Ansoff Model is also a hybrid. On one hand, a complex dynamic systems approach is taken. On the other, an emergence approach is viewed as part of the firms ability to respond to discontinuous events. Then, the firm is assessed using a complex model to determine its ability aggressively to create the future strategy the firm needs and the responsiveness capabilities of the firm to address discontinuous events as they emerge.

Rosabeth Moss Kanter Also from Harvard Business School, the fact that Kanter rejects the self-confirming approach to the development of strategy in favor of contingency design is an important underpinning of her work. She believes that the strategist must begin with an understanding of the future environment, then contingently design the firm around that understanding. In her book When Giants Learn to Dance (1990), she offers

seven ideas that describe managers who will be successful in the new corporate environment:

They operate without the power of the might of the hierarchy behind them (leadership vs. positional power). They can compete (internally) without undercutting competition). They must have the highest ethical standards. They possess humility. They must have a process focus. They must be multifaceted and ambidextrous (work across business units/flexible). They must be willing to tie their rewards to their own performance. Evan Dudik Strategic Renaissance (2000) by Evan Dudik takes a complex systems approach to strategy by suggesting that the planner must understand the level of uncertainty of the future environment (very similar to Ansoffs turbulence) and, at the same time, that the firm must create a complex adaptive system (the firm itself) if it is to deal with that uncertainty. It is clearly an excellent application of contingency theory. Dudiks book covers all of the positives related to developing complex mental models and is excellent in presenting contingency approaches to the development of corporate strategy.

Predictive Modeling:Predictive modeling involves a complex mental model and a futuristic (as opposed to historic) strategic frame. Since complex-futuristic approaches involve complexity, there are a number of types of those approaches, including some hybrids. Even though some of the approaches are especially concerned with complexity, some tend to be less holistic or whole-system than others.

AIS: The first approach might be called artificial intelligence simulation or AIS, which involves the creation of a computer-based model in which key variables can be manipulated. The researcher might identify 10 independent variables that appear to drive certain outcomes (dependent variables). In some cases it is possible to base the behaviors of the variables on statistically based relationships. That adds power to the model. Regardless, the AIS process allows the researcher to manipulate variables in

order to develop some level of predictive confidence in the future. In some ways, AIS can be similar to war gaming.

Scenarios and war gaming can be quite helpful in complex environments.

Scenarios: The concept of scenario planning was pioneered by oil giant Shell. Creating one single strategic plan to be followed with military precision simply didnt work in practice. As circumstances changed, the strategic plan also needed changing and executives were either constantly going back to the drawing board or trying to push through a plan that was no longer appropriate. The longer the planning horizon, the worse the problem became. Shells answer was to make not one but a number of sets of assumptions about the future environment. At its simplest, these would be optimistic, pessimistic, and straightline. Any one of these scenarios could happen, but managers now drew up plans that followed the most likely series of events, while building in frequent evaluation points where one of the alternative scenarios could take over. In effect, what they were doing was thinking through the implications of necessary deviations of a plan sufficiently far ahead to be able to implement them at minimum cost and effort.

Scenarios are classified as complex-future models (predictive modeling) and they have been successfully used for the development of strategy for complex environments for a number of years. Scenarios involve the analysis of future driving forces in an environment and the consideration of a range of possible outcomes.. Scenarios tend to focus on a very narrow area of the future, but ideally will attempt to account for driving forces, or independent variables that could have an impact upon the area being studied. Scenarios have two purposes: first, a multiple scenario (i.e. three or four possible scenarios about a specific issue) can provide a complex systems overview of an issue; second, they can be extremely helpful in driving organizational learning.

A number of comments have been made regarding driving organizational learning and managing resistance to change. It is important to remember that dissonant data (information that indicates that the future environment will shift, and that the rules of the game will change) is more often rejected by senior managers than accepted. Managing such resistance (which can be measured using the modified Ansoff model) is quite important from a profit standpoint.

One of the keys to anticipating future turbulence environments is to ensure that the firm has the level of adaptiveness required for the level of future turbulence. In turbulence levels above 3.0, there is a growing expectation of discontinuous or surprise events. As the turbulence level rises, the ability of the firm to reactively transform is clearly a profit issue. The higher the level of environmental speed and complexity, the higher the negative profit impact if the organization has low levels of adaptive capabilities. As research by Dawn Kelly and Terry Amburgey reveals, internal resistance to change slows the organizational response to discontinuous events.

War gaming: War gaming is a good way of preparing for complex futures. War gaming is somewhat similar to using scenarios. There are a number of ways of doing it, but it generally involves the gathering of competitor information prior to beginning the exercise. The information might cover the predisposition or probable behavior of different competitors. Some might use a five forces analysis and a SWOT analysis (of each competitor). A modified Ansoff strategic profile of each competitor can be a most valuable tool.

War gaming involves the organization dividing its managers into teams, which take on the role of competitors. The competitors simulate a battle. The game is played in terms of successive strategies created by each team. The exercise facilitator creates ways for the competitors to play out their strategy, based upon the research about the competitor that they were given. In some cases, the senior executives of the client firm will take on the role of strategists for their own firm, while their management team will play the roles of their competitors. This can be an extremely revealing exercise, especially when the third or fourth passes or battles are completed.

In many ways the value of war gaming, as with scenarios, is that of organizational learning. War gaming can help internal managers to change their mental models of the competitive environment as well as their perceptions of competitors most probable behaviors. One word of caution: there is nothing more boring than a poorly conceived war game, and the services of external facilitators are recommended; make sure that the facilitators selected are at the cutting edge in their field. Those that revert to simple (non complexity-based) approaches, such as SWOT alone, should be avoided.

Growth Strategy in Small Entrepreneurial Business Organisations: A Conceptual Model


Satyajit Majumdar T. A. Pai Management Institute Manipal 576 104 Karnataka majumdar@mail.tapmi.org -----------------------------------------------------------------------------------------------------------------------------------------------------------------Abstract The research article focuses on two major considerations namely growth planning in small organisation as entrepreneurial as well as strategic activity. Growth of small organisations is influenced by the background/resource of the entrepreneur, the nature of the firm, and the strategic decisions taken by the owner/manager. Entrepreneurs of the small businesses are the sole strategic decision makers and their close control supports easy translation of entrepreneurial vision into action. Their ability, need and opportunity are the major determinants of growth. Small business entrepreneurs show different motives and also have different attitude and behaviour towards growth. Also a given set of entrepreneurial characteristics beneficial in one context may work adversely in the other. A fit between strategy, structure and processes is more favourable to the performance. In this article a conceptual model on growth strategy in small entrepreneurial organisations is presented. Three propositions are based on the theoretical framework are - (1) Personal ambition and vision of the entrepreneurs drive the growth of small organisations, (2) The entrepreneurs of small organisation search for strategic fit in the market and the environment, and (3) The entrepreneurs of small organisation continue to search better fit in the market. The propositions need to be validated with the help of empirical work. The article takes an integrated view on all these aspects of small business management while explaining the growth strategy. The propositions made in this article reflect strategic and entrepreneurial

dimensions of growth and takes a view that entrepreneurial motivation is different from growth motivation.

Key words : Small business management, entrepreneurial growth strategy, entrepreneurship, entrepreneurial ambition towards growth, growth theory

Background & Theoretical Orientation Small entrepreneurial organisations have high influence of entrepreneurs personality and style, less formal planning and control and loose organisation structure and administrative system. These organisations are the outcomes of initiatives of entrepreneurial talents. Small businesses have some fundamental advantages. They need low investment as compare to their large counterparts. However due to this reason they also face resource limitationboth human and financial resources. They offer employment to the local talents. Flexibility and closeness to the customers are the major advantages; due to informal settings these organisations can strike the market fast. They also have the advantage of economies of scale and lower overheads. In entrepreneurial small organisations close control supports easy translation of entrepreneurial vision into action. But due to limited exposure the small organisations have less information about the market and suffer from lack of economies of scope. (Kirk and Noonan, 1982; Nooteboom, 2002) Firms are the means for realising entrepreneurial ambitions of individual entrepreneurs. Entrepreneurial ventures work on the principle motto of profitability and growth with a long term desire of market dominance. This is based on innovation in products, processes or practices. There exists difference between strategic orientations of entrepreneurial and small ventures. All small ventures do not work on innovations or dominance motive. (Matthews and Scot, 1995) In this paper I have attempted to develop a conceptual framework to establish linkages with entrepreneurial vision towards growth and innovation in finding fit in the market place as a strategic initiative. For this purpose I have reviewed conceptual and empirical work carried out in various countries. The literature support was drawn from survival of new firms and growth of existing firms. I have also taken literature support to develop an explanation about growth in small and entrepreneurial context. Research gap In his book authored by Patel (1995) titled The Seven Business Crises addressed business planning, management and growth issues of entrepreneurial organisations. The author took a consultative approach and expressed that entrepreneurs attitude

and psychology is important for growth as most of the problems are rooted within the venture rather than outside and recommended a carefully crafted strategic growth plan with high degree of entrepreneurial intensity to create a niche. He also advocated that taking outside help in the planning process may lead better results. Organisational performance and effectiveness is a function of match between organisational structure, processes, and the external environment (Hrebiniak and Joyce, 1985). In the filed of strategic management pioneering works were carried out by many experts. Porter emphasised that corporate strategy can not be planned and implemented without considering the competitive environment whereas Mintzberg explained that strategy is evolutionary, organic process and it is unpredictable (Hamel and Prahalad, 2002). Although Chandler stressed on organisational structure design around the needs of effective strategy execution, the structure also influence the choice of strategy (Thompson and Strickland, 1999). Organisations attempt to change the external conditions to make them favourable (Liao et al, 2003). Hamel and Prahalad (2002) argued that core competence gives a company competitive capability and remains central to its strategy planning thus helps the company to establish in the market. Although competitive strategy proposed by Porter (1979) has been widely referred in business management literature but there is limited focus on the specific dimensions of small businesses. Strategic management literature and research focus have a bias towards large corporations. Growth of small organisations is influenced by three major factors the background/resource of the entrepreneur, the nature of the firm, and the strategic decisions taken by the owner/manager (Storey, 1994). The entrepreneur needs to develop both strategic and tactical skills and abilities (Kuratko et al, 2001). Entrepreneurial ventures being goal directed also need to plan to face the uncertainties (Carland et al, 1984). Entrepreneurial strategy is the means through which small organisations establish and re-establish the fundamental set of relationships with the environment and the uncertainties (Murray, 1984). OFarrel and Hitchins (2002) analysed the major problems in evaluation of growth of small organisations. First, there is major inconsistency in defining the small firms. Second, there are also inconsistencies in the dimensions of growth; employment, profit, value added, turnover, total asset and market share are the parameters suggested by theorists. High performing small manufacturing firms emphasise on new product development, product improvement, product quality, and customer service and the related performance indicators are adoption of new performance methods, employee productivity and efficiency, and employee welfare (Kotey and Meredith, 1997). Growth also depends on the changing industry patterns and management; it is also about sociological evolution of the business (Boswell, 1973). Prater and Ghosh

(2005) in an empirical study on U.S. based small and medium sized enterprises operating in Europe reported new product development, expansion into new international markets and expansion into new European markets are the major growth strategies adopted by them. Contrary to common belief upgrading operation strategy was not reported to be a major strategy. The study also concluded that the enterprises did not take advantage of outsourcing of operation functions such as logistics. However growth carries different meanings by the different entrepreneurs. There is a strong impact of entrepreneurs attitude and the decision on growth and there may not be uniformity in growth agenda among the entrepreneurs even if they operate in the same market (Matthews and Scot, 1995). O Farrell and Hitchins (2002) in their article Alternative Theories of Small Firm Growth A critical review made a comprehensive analysis of various approaches to growth in small organisations. They concluded that the industrial economics literature primarily focuses on large organisations. As the nature and scale of impediments to growth of small organisations are different the authors emphasised to search for other conceptual frameworks. They analysed the growth model theory (Churchill and Lewis, 1983) which describes that the small entrepreneurial organisations progress in stages from inception to maturity. Each stage can be explained with the help of typical characteristics of entrepreneur, resources, and other variables. Major criticism of theory is on account of the heuristic classification with least focus on the process. The model implicitly assumes that small organisations either grow or fail. There can be fast or slow growing organisations. The model does not explain the condition of the early stages which might have significant influence on growth. It is also not clear whether there is sequence attached to growth or some organisations can skip some intermediate stages. The other criticisms are about the parameters of growth and the context of regional economies. The authors expressed that the model is based on the wisdom based symptoms and have failed to explain the growth processes. However in a study on semi-conductor ventures in USA Eisenhardt and Schoonhoven (2002) found that competition at founding stage did not affect growth. This finding was reported to be robust across several measures of competition. The research is evident on this account. Woods and Joyce (2003) in their article Owner-Managers and the Practice of Strategic Management described Mintzbergs explanation on strategic planning small organisations as anti-planner. They wrote, As far as we can see he (Mintzberg) tend to subscribe to the following theses about small entrepreneurial firms: (1) A written strategic plan has no explanatory power in respect of their behaviour because personal strategic vision rather than written strategic plans determine actual strategy; (2) The small entrepreneurial firm develops a strategy that is deliberate and often an extrapolation of the chief executives personality; (3) The decision making of a small

entrepreneurial firm is often intuitive and thus its success rests on reality confirming its intuitions about the opportunities that exist (and that it seeks to exploit by virtue of its flexibility); (4) There is a persisting need for strategy based on personal vision and control and thus a persisting need for small entrepreneurial firms. Successful small businesses take the benefit of narrow scope of market, product and customer specialisation. On strategic model of growth O Farrell and Hitchins (2002) analysed the strategic management perspective. Referring research articles they explained that there are two environments in which an organisation carries out business. External environment deals with suppliers, customers, competition, taxation, market and government policies. The internal environment consists of the personal and leadership factors of the entrepreneur, resources, etc. High growth firms make use of external relations (Lechner and Dowling, 2003) and growth is a combination of environmental and leadership processes (Eisenhardt and Schoonhoven, 2002). Similar conclusions were drawn by Chan and Foster (2001) after a study of small businesses in Hong Kong and by Kelmar and Wingham (1995). The latter listed 47 growth strategies reported in various research works and classified them into 12 categories. They reported that 55.5% were related to external variables of growth (market penetration, pricing, product mix, product demand, promotion, market creation, market stability and intermediary use as the greatest contributors) and the rest were the internal variables (corporate strategy and staffing are the greatest contributors). They concluded that a combination of external and internal variables supports growth of small organisations. The organisations establish relationship with the external environment to progress. McMohan (2001) in a study on growth of small and medium manufacturing organisations concluded that business growth and performance outcomes are correlated. The financial control in the fast growing enterprises maximise profit and target to increase turnover, these are interdependent. Cash flow, profitability and sales are the key variables monitored. Strategic planning for growth in these organisations is influenced significantly by investment planning, growth commitment, export commitment, and enterprise size. Many studies are available on personality, and motivational aspects of entrepreneurs. A systematic nation-wide study was conducted in UK to inquire about the performance and problems of small manufacturing firms. A committee was formed (Bolton Committee) for this purpose in June, 1969 which published its report in November, 1971. Entrepreneurship as a process has also been explained by many researchers. But the strategic management literature is biased towards the size and does not address growth aspects of entrepreneurial ventures not necessarily growing

in size. Such literatures do not relate the strategic growth management capabilities of the small entrepreneurs with growth. There is a gap in associating the critical factors for success of small organisations such as ownership, management styles, etc with growth. Although we have access to some literature based on the research work done in USA and Europe but the factors affecting growth or success of small organisations vary from country to country (Wijewardena and Cooray, 1995). Conceptual Model on Small Business Growth Strategy In order to build the theoretical base for discussion I am referring an article In Search of a Comparative Framework: Small-scale Entrepreneurs in Asia andEurope authored by Carol Upadhya and Mario Rutten (1997). The authors classified the entrepreneurship related studies into two major categories cultural and structural. The cultural perspective was inspired by Max Webers Protestant ethic thesis of 1976 and 1978 emphasising cultural embedding of capitalise development and the ideological motivation for rational profit-seeking among early European capitalists. While in structural approach largely based on Marxist theories of capitalist transformation stress on macro-economic or political factors in explaining the development of entrepreneurship or lack thereof. Since then a number of studies were made in Asia. Referring Harveys work of 1989 the authors explained that the significant growth of small and rural based entrepreneurial organisations in Asia and Europe can be characterised by two seemingly contradictory tendencies increasing centralisation and monopolisation of capital by huge translational corporations in one end and on the other end growing large number of small scale organisations which are largely family controlled. Many of these small scale organisations link with large ones through sub-contracting relations. These small organisations also develop various kinds of linkages among themselves. Most studies conclude that social network is central to the working of small organisations. Entrepreneurial ambition and growth motives Upadhya and Rutten (1997) referred Bourdieus theory to explain the entrepreneurial behaviour - Bourdieu (1986, 1992) has shown how people, though constrained by their cultural inheritance and structural factors, in pursuit of their goals employ strategies which are based on conversion of one kind of capital (social, cultural, economic) to another. They also submitted a counter -argument of Baumol (1990) Their (entrepreneurs) main objective is not the well-being of the society but their own personal well-being, defined in terms of wealth, power and prestige. The third approach presented was from Biggart (1991) advocating Webeian institutional perspective When social actions are repeated over time and are assigned similar meanings by self and others, they become institutionalised; institutionalised action is

economically efficient because making decisions and carrying them out becomes simpler when the actor predict and understand the actions of other. All entrepreneurial ventures are not conceived with equal potential for survival or growth. The potential value of the knowledge imparted to the entrepreneur also varies from one venture to the other (Chrisman and McMullan, 2004). Personality of the CEO, strategy and the firm structure directly influence the performance of small organisations (Miller and Toulouse, 1986). Davidson (2002) in his article Continued Entrepreneurship Ability, need and opportunity as determinants of small firm growth developed a model and established three major determinants of growth namely ability, need and opportunity. These factors also explain the variation in growth motivation. The author concluded that need related factors are more important than the ability and opportunity. But willingness of the entrepreneurs to take credit of success or growth was also concluded as an important dimension of growth of small entrepreneurial organisations an the cognitive bias such as desire to present oneself as the best, ego protection and emotional needs influence this dimension (Rogoff et al, 2004). However the actions of the entrepreneurs can not be described by economic interests alone as they are also driven by prestige, social status or political influence. The entrepreneurs who are also businessmen are act consciously both collectively or individually to further their political, social or economic goals. Their ambitions are not restricted to their individual interests but also to the class or social group. (Upadhya and Rutten, 1997). Entrepreneurs of the small businesses are the sole strategic decision makers and their close control supports easy translation of entrepreneurial vision into action (Van Kirk and Noonan, 1982). The effects of founding team (the entrepreneurs) grow with time and over the years the organisational growth become self-fulfilling prophesies for many (Eisenhardt and Schoonhoven, 2002). Although the small organisations have the advantage of economies of scale, lower overheads and the capability to strike the markets fast (Van Kirk and Noonan 1982); entrepreneurial motivation (to grow) and competence in strategy planning have strong influence on the business strategy (Matthews and Scot, 1995). Unless the entrepreneurs possess some strong positive belief towards growth they would not consider strategy planning worth attempting. In strategic management literature this aspect is referred as strategic intent which means the ambitious strategic objectives and concentration on these actions to achieve these objectives. In small organisation creating a niche is a typical strategic intent (Thomson, 1999).Financial motives are equally important along with others if not more in small entrepreneurial organisations (Boswell, 1993). While discussing paradigm of entrepreneurship Stevenson and Jarillo (2002) and Brockhaus and Horwitz (2002) referred the popular work of McClelland The

Achieving Society (1961) to explain that the entrepreneurial behaviour is dependent upon personal motivations which in turn are dependent on environmental conditions. Bird and Jelinek (2002) argued that entrepreneurs intentionally link their own and others resources to build a firm to add value. Intentionality is a state of mind, directing attention, experience and actions towards a specific goal or way to its achievement. The entrepreneurs have strong desire to be successful and major determinant of success is intentional processes. Growth is also attributed to the need for achievement present in large parts of the society. Small firm as enabler The entrepreneurship literature explains that the reasons for independent entrepreneurship may be grouped into push and pull factors. Push factors are related to gap in social security and high rate of unemployment and may also be a personal crisis. Important pull factor is independence in setting goal and choice of location, method of production, working hours and organisational structure. This is about Schumpeterian principle of innovation. Entrepreneurs innovate product, process or methods. The entrepreneurs also want to enjoy the independence through informality. Hence small organisations are results of both a condition and independence. But for many the independence is not about innovation or growth but maintaining traditional way and remains small for own sake and restricting financial resource for growth further adds to the reason for being small. (Nooteboom, 2002; Boswell, 1973) Context and strategy Nooteboom (2002) with the help of research findings of others (Chell, 1985; Sandberg and Hofer, 1987) argued that the personal characteristics of the entrepreneurs are not adequate to determine the success or failure of the business. The outcome is determined by these characteristics while interacting with contingency factors from the context in which the business operates with the strategies. They explained that different decisions and actions follow different conditions. A given set of entrepreneurial characteristics may be beneficial in one configuration of context and action but may work adversely in the other. Chan and Foster (2001) after studying small businesses in Hong Kong also concluded that strategy formulation is highly contextual.

Contextual conditions can not be changed easily by the entrepreneurs. These are those attribute of the organisations which are selected directly or indirectly by the entrepreneurs. Some of them are given while others are decided. The awareness about them is a precursor for entrepreneurship (Bird and Jelinek, 2002). Stearns et al (2002) conducted an empirical study in Pennsylvania on survival of new firms and presented three conditions in new firm context: location, industry and strategy. The survival is associated with strategy and location as well as interaction of strategy in a given industry environment. A strong association of business performance with entrepreneurial strategy and environmental conditions was also reported in research findings of Dess et al (1997). Strategic Growth Planning in Small Organisations Vision towards growth & attitude of the entrepreneurs Many leading authors have written about vision. Vision is of fundamental importance in defining the basis of a system. It is a projection, an image of projected into the future of the place the entrepreneur wants his/her product to occupy eventually on the market. This also deals with the kind of enterprise needed to reach such position. It provides a guiding framework to reach there. The framework attracts, stimulates and motivates the people working with the entrepreneur. In this way the team feel motivated and eager to work hard to realise the vision. Vision offers a point of reference to the entrepreneur around which the entrepreneur assimilates information. Entrepreneurial intention is communicated and displayed by vision. This is also reinforcing the core set of values. Hence clarity of vision is important to venture success. Small business entrepreneurs can focus largely on visionary management

which provides the reflection framework for effectiveness of all tasks to enable concrete action to take place. Emerging visions are formed around the ideas and concepts of the products or services imagined by the entrepreneur. The single emerging vision which the entrepreneur wants to pursue becomes the central vision. This also aims at providing the big picture for strategy planning. (Filion, 2002; Bird and Jelinek, 2002) Wiklund et al (2003) in their paper on expectancy value of approach of small business reviewed the broad framework on entrepreneurial perception on growth. Economists view is - entrepreneurs start enterprises to maximise profit. In small business context, a diverse view exists. Entrepreneurs have different motive to initiate and operate an enterprise than maximisation of profit. Small business entrepreneurs show different economic and non-economic motives and also they also have different attitude and behaviour towards growth. The authors argued that by providing relevant information and knowledge about growth small business entrepreneurs belief can be influenced. Society plays a major role in this regard. An empirical research in Sweden spread over a decade concludes that contrary to the belief financial gain was not the major determinant of growth. This questions the entrepreneurial perception of growth which is not under agreement with established economic and normative management theories. The reported important determinants of growth are control, degree of independence in relation to other stakeholders, and ability to survive crises. They influence in different combinations under varied conditions. Employee well-being is the single most important attitude towards growth reported in most of the studies. Employee well-being leads to improving in working conditions for the employees for productive purposes and creates a positive climate towards growth. This is about facilitating stretch as referred by Ghoshal et al. (2000). Stretch is antithesis of underperformance; it is a process in which every one pushes self to perform at higher level. In this context growth is also associated with new challenges and development opportunities which affect the employees. (Wiklund et al, 2003; Ghoshal et al, 2000) In an entrepreneurial organisation strategic intent provides emotional and intellectual energy. Strategic intent is an anti-thesis of strategy focus which needs to search for a fit between existing resources and emerging opportunities, where as strategic intent searches for misfit between resources and aspirations. It provides a sense of direction. It is a process in which every one pushes self to perform at higher level. Growth is also associated with new challenges and development opportunities which affect the employees. (Hamel and Prahalad, 2002; Wiklund et al, 2003; Ghoshal et al, 2000) Proposition 1 : Personal ambition and vision of the entrepreneurs drive the growth of small organisations.

Strategic Orientation of the Entrepreneur and search for fit as strategy The environment in which the organisation operates poses challenges depending of the industry life cycle and industry structure; but market growth does not necessarily lead to growth of small organisations (Morris, 2001). Gibbons and OConnor (2005) conducted a study on Irish SMEs and concluded that the entrepreneurs did not have adequate understanding of strategic management terms and were less equipped with strategic management tools. The possible reasons were centralised decision making by the entrepreneur or difficulty in prioritizing the development of their managerial skills. Under turbulent and uncertain environment the small business entrepreneurs use their intuitive skills rather than systematic approach or tools. In the conceptual model by Keats and Bracker (1988) proposed that entrepreneurs tend to use sophisticated strategic planning due to high task motivation and the belief about their ability to influence the environment and thus lowering the uncertainties. The study of Eisenhardt and Schoonhoven (2002) also reported that innovative technical strategies at founding stage had no lasting impact. The initial advantage on this account was not found to be a growth predictor as later stage, neither the advantage for growth is reported to be sustainable. The authors concluded that a fit between strategy, structure and processes is more favourable to performance rather than strategy per se. The strategies of innovation and niche markets exploit the strength in providing the unique competencies and customised products with proximity to the customers (Nooteboom, 2002). Bhide (1999) based on interviews of founders of 100 major companies in U.S.A. explained that the entrepreneurs of high performing companies adopt faster and cheaper method of strategy planning without expecting high degree of precision. This is more economical and timely as compared to typical corporate practices. These entrepreneurs integrate action and analysis. Need for strategic orientation in management of small business in terms of knowledge about market, customers and competitors is emphasised in many studies, this need is emphasised more because of ever increasing competition and shortening product and service life-cycles (Callahan and Cassar, 1995). In a study (in U.K.) on agri-product based export growth strategy Crick et al (2000) reported that majority of the firms adopted a planned approach while using market information. Those who employed market concentration strategy used this approach to meet the business performance objectives where as those who adopted market spreading strategy used this to arrive at a decision to spread their export sales to a larger market. In entrepreneurial organisations the strategic intent provides emotional and intellectual energy. This is an anti-thesis of strategy focus which needs to search for a fit between existing resources and emerging opportunities, where as strategic intent searches for misfit between resources and aspirations. It provides a sense of direction (Hamel and Prahalad, 2002). This supports the early Schumpeterian view on innovation as creative destruction where in the small firms continuously explore a fit in a niche market.

Proposition 2 : The entrepreneurs of small organisation search for strategic fit in the market and the environment. Continuous search: entrepreneurial way Nooteboom (2002) proposed three core characteristics of the small organisations independence, personality, and the small scale. The contingency perspective explains the decisions and actions under a given opportunity depending on the circumstance. The core characteristic of small scale is the characteristic of the firm and does not only deal with economy of scale in production or operation but also involve marketing. The core characteristic of personality is about the entrepreneur and includes the intertwining of private and business affairs. Informality of authority, communication and procedure are the other aspects of this characteristic. The characteristic of freedom is also about the entrepreneur. As discussed this indicates the relative freedom from discipline of the capital markets, allowing some idiosyncratic goals and conducts. A given characteristic may have different effect in different circumstance. As the small organisation grows the entrepreneur need to delegate more, build additional layers of hierarchy, establish formal systems and procedures for planning, coordination and control, create a structure communication system and make knowledge more explicit and less tacit. Innovation exploits the strength of motivated management and labour to survive in harsh times. Small organisations are relatively strong in inventions aimed at application of basic technologies to serve the small niche or residual markets. This exploits the potential flexibility and closeness to the customers. They possess skills to translate technology in a variety of new technology-product-market combination. (Nooteboom, 2002) Industry structure and environmental dimensions significantly affect performance of small organisation performance (Liao et al, 2003; Peterson, 1985). The essence of entrepreneurship is the willingness to pursue opportunity to find a way (Stevenson and Jarillo, 2002). The entrepreneurs try to realise their vision by a continuous search. Their central vision is supported by many secondary visions with both internal and external components which involves specific management plans and actions (Filion, 2002). The entrepreneurs need to be long term thinkers. At the same time they are necessarily required to be short term players. But as the frame of reference changes the entrepreneurs need to redefine their functions and roles. Growth of the organisation demands building up teams and developing network outside the organisation. (Bird and Jelinek, 2002)

Proposition 3 : The entrepreneurs of small organisation continue to search better fit in the market. Testing the Model The propositions formulated above need to be established with the help of empirical work. These propositions should form basis for posing research questions and setting hypothesis for testing. Factors under each proposition can to be identified based on this article as well as other relevant literature. While framing research questions integrated view should be taken and interaction among the factors should also be considered. For example entrepreneurial growth ambition, skill and attitude of the entrepreneur and the entrepreneurial propensity shall form a basis to develop an understanding about the industry and the environment and the entrepreneur shall form a strategy depending on his/her organisations competitive capability and market opportunities. It is important to first define growth as envisaged by the entrepreneurs. This was also suggested by some researchers (Rogoff et al, 2004). There would be difficulties in making this issue open ended but by offering options to the entrepreneurs to describe growth as it may limit their thinking. Middle path approach may be useful to deal with this problem. An exhaustive list of financial and non-financial options should be prepared based on similar studies carrier out earlier. The entrepreneurs should be asked to rate them as their preferences this would avoid the dilemma of selecting one option at the cost of the other. Selective interview schedule may be planned with some entrepreneurs who show willingness to share more information. Clark et al (2001) suggested context based study on entrepreneurial growth strategy. The contexts suggested were country and sector. The study conducted by Wijewardana and Cooray (1995) on small manufacturing organisations in Kobe (Japan) included four sectors namely food and beverage, wood and paper products, chemical products and fabricated metal products. The authors concluded that sales growth which was taken as one of the growth determinants is industry specific. Specific industry sector poses unique opportunities or constraints which in turn may influence the growth performance as well as entrepreneurs behaviour. Further research in this area may be conducted in specific industry segment using the conceptual framework suggested in this paper. It is advisable to carry out empirical work in those sectors or industry segments which are facing high competitive pressure and are under transition due to industry restructuring. It is important to first study the industry history in the specific segments. Later entrepreneurial legacy, emerging industry structure, technological changes and the overall challenges for small organisations should be considered. This may be possible by studying industry trend

analysis of consulting and research agencies, and interviewing industry experts. An industry profile would help the researcher to formulate appropriate research design. In India some castes and regions are specifically known to be entrepreneurial as compared to others. The family values and social settings play a major role in this regard. The longitudinal studies should also take a note about this factor. This may not be a valid proposition in case of technology based entrepreneurship. Hypothesis testing is advised to establish some understanding. Conclusions & Limitations Entrepreneurial motivation is different from growth motivation. Entrepreneurial growth strategy in small business environment is a complex body of knowledge which is not completely explored. In this article I focused on two major considerations growth planning in small organisation as entrepreneurial as well as strategic activity. The article largely addresses the argument that entrepreneurship is not only about stating-up of an enterprise and maintaining the status quo but equally important is to continue but also to lead the organisation to grow. Entrepreneurial vision is important for growth. Small entrepreneurial organisations are different form large corporates where strategic decision making is vested on a body which is assisted by a large set of professional talent. In small entrepreneurial organisations the strategic decision making is vested with the entrepreneur or limited number of trusted individuals. The strategy formulation for growth is driven by the vision and motivation of the entrepreneurs. Also the motivation of the entrepreneur governs the attitude and decision on growth and the entrepreneurs may have different growth parameters to address. Entrepreneurs start venture with some innovation and growth plan, the environment in which the organisation operates poses different kind of challenges depending of the industry life cycle and industry structure. This makes the strategy planning task challenging for the entrepreneur as in most of the cases he/she is the only strategic decision maker. The conceptual model attempted in this paper took an integrated view on all these aspects of small business management. The propositions made in this article reflect strategic and entrepreneurial dimensions of growth. The article stands out on one important dimension. While dealing with the growth attitude of entrepreneur, it is evident that concluding on common terms is not possible as the entrepreneurial motives vary. The paper has some limitations. As discussed the whole subject has high degree of contextual influence. Issues like family, society and culture may not have similar

implication when referred in Indian conditions. The model may need some calibration on these aspects. The other issue is about the scaling which may be viewed as another limitation. I have not taken a view on the organic growth of small organisation to become medium sized and then large organisation. Growth was focused more on entrepreneurial vision and innovative ways to implement the vision rather on the scale of business operation.

References
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Chan, S. Y. and M. J. Foster. 2001. Strategy Formulation in Small Business : The Hong Kong Experience. International Small Business Journal, 19, 3 Chrisman, J. J. and W. E. McMullan. 2004. Outsider Assistance as a Knowledge Resource for New Venture Survival. Journal of Small Business Management, 42(3)
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Lechner, C. and M. Dowling. 2003. Firm networks: external relationships as source for the growth and competitiveness of entrepreneurial forms. Entrepreneurship & Regional Development, 15 Liao, J., H. Welsch, and M. Stocia. 2003. Organisational Absorptive Capacity and Responsiveness : An Empirical Investigation of Growth Oriented SMEs. Entrepreneurship Theory and Practice, Fall

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Issues faced by SMEs


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"If we acquire even 10% of the SME customer base we can build a billion-dollar venture. By targeting large enterprises we will not be able to scale up so rapidly. This statement made by Mr. Ambarish Gupta, cofounder of Knowlarity Communications clearly depicts the significance of the SMEs in the Indian economy. SMEs are rapidly growing and are a vital part of the economy, especially in emerging markets. Apart from being one of the key contributors to employment, they ensure the availability of goods and services at affordable costs. In all they help in sustainable development of the economy. Different nations have different parameters for classifying enterprises as small or medium scaled. SME Classifications The enterprises in India are classified based on the investment. This classification differs for manufacturing and service firms. In the manufacturing sector, firms having investment above Rs 25 lakhs and up to Rs. 5 crores are considered as small enterprises and firms with investment between Rs 5 crores and Rs. 10 crores are considered medium enterprises. However, in the service sector, a small enterprise would require investment between Rs. 10 lakhs and Rs. 2 crores while a medium enterprise would require investment between Rs. 2 crores and Rs. 5 crores. In India SMEs employ around 75 million people and are considered as the second largest providers of employment (first being agriculture). This sector contributed 11% to GDP in 2011. This sector contributes to around 45% of the manufactured output and 40% of the exports. In other countries, unlike India, classification is done based on other factors such as number of people employed, operating revenue, etc. In China, the classification standards vary for different industries. For instance in the agriculture sector, enterprises with an operating revenue greater than 0.5 million are considered to be small and those with revenue greater than 5 million are considered as medium. The SMEs account for 99% of the total firms in China. They contribute to 60% of the GDP, 70% of the employment and 60% of the exports while they use only 20% of the financial resources. Given their tremendous impact on the Indian economy, it is natural that any impact on the SME sector tends to have an impact on the overall economy as well. In our research we gathered

data from some SMEs in and around the Indore area and most of the issues were common to all of them. In this article we have tried to look at these issues and what possible options are available for the companies in order to overcome these issues. Issues Issues faced by SMEs across the world are almost similar and can be classified under following heads:1. 2. 3. 4. 5. 6. 7. 8. SME financing Use of technology Ineffective marketing strategy Constraint on modernization and expansion Limited knowledge Legal Loopholes (Intellectual Property) Competition from big players Manpower Shortage

SME Financing: - SME financing is a universal issue across the world. SMEs have shown tremendous growth and they have done better than large corporations in terms of employment generation and GVA (Gross Value Addition) growth. Although governments across the world have come up with laws and acts to support SMEs, poor credit history causes lack of funds when needed most by them. In some cases, they have to pay a very high cost of capital for the funds they get from the market, which leads to a high degree of risk. This further increases the cost of capital for them, making it a vicious circle. While it is very easy for large and established players in the industry to raise funds, it is not the same in case of SMEs. This is also dependent on the country in which the SME is being set up. In a country like India, there are very few angel investors willing to invest in such companies. However, this is not a severe issue in a country like USA. It was pointed out in an RBI report that in the year 2010, only 13% of the SMEs that were registered could access financial resources from formal sources. A major problem faced by SMEs is their credit rating. So, basically investors are unaware of the risk involved in investing in such a business. However, in India, over the past few years, credit rating agencies have started assessing SMEs. Some of these are SMERA (SME Rating Agency), which was the first rating agency in India to come up with ratings exclusively for SMEs. Apart from this, there are other agencies like ICRA and CRISIL that rate SMEs.

A survey conducted in Malaysia has revealed that more than 56% of SMEs depend on self financing for their innovation activities, and almost 67% do not get finance from traditional channels. Most of them have to operate for almost 10 years in financial crisis, and have to depend on self-financing or non-traditional financing methods for survival. Innovation based SMEs depend on University funds to finance their R&D. Use of Technology: - As technology is becoming more and more important for the success and faster growth of companies, companies with access to state-of-the art technology are growing faster than the companies not using technology. While technology is essential for the growth of a company, it does come at a price, which is sometimes not affordable for an SME. While many sectors become unattractive because of the heavy investments they need, preventing small start-ups to enter, many start-ups find themselves lagging behind since they cant get access to cutting edge technology, leaving them strategically exposed. Ineffective Marketing Strategy: - An ineffective marketing strategy is one issue that affects sales and hence revenues for many start-ups and SMEs. Sectors like FMCG, which depend heavily on marketing to reach consumers, become unattractive for SMEs. SMEs that have a presence in such sectors experience low sales growth due to lack of a well thought of marketing strategy. While their core-competence i.e. focus on innovation and product quality has helped them create a market for them, they havent been able to scale up as much as they aspire, primarily because of lack of marketing and promotion skills. Many of them still depend on word-of-mouth advertising and do not have sufficient skills to develop an effective marketing strategy. One of the companies we studied explains the need for a robust marketing plan to a great extent. The company was in the business of manufacturing soya products. It was facing the issue of low sales in some of its product lines (soya chunks/soya meal etc.) and was dissatisfied with its existing marketing channels. Currently acting as a supplier for many large companies, the company has aspirations of marketing its product on its own and is looking at possible alternatives for the same. Constraint on modernization and expansion: - Limited capital availability and lack of expertise are the main factors affecting modernization and expansion plans for an SME. Since initial years of business do not produce enough cash flows, the available cash is used up in operating activities, and there is lack of cash for modernization and expansion. Credit is also not easily available, or is available from non-conventional channels at a very high rate. Limited Knowledge: - SMEs are normally good at technical innovations, but they have limited knowledge of common operational issues faced when they go for commercialization of their product. This leads to two broad issues:-

1. Failure of products: - Some products simply fail because SMEs cannot find out ways to produce them in economical manner, leading to high production costs, and they eventually have to drop the product. 2. Lower profit margins: - Inefficient production and operations lead to higher costs, and lesser profit margins. Legal Loopholes (Intellectual Property):- Technology based companies sometimes end up in a bitter war with giants in their respective industries on Intellectual property Rights issues, and sometimes end up giving up on the fight due to the pressure and lack of funds. Sometimes, getting their technology patented takes so long a time that they eventually sell the technology to bigger firms, e.g. LAB Pharmaceuticals lacked expertise in getting patents, so they had to enter into agreement with Merck for their product Davanrik, wherein Merck will get the patent for the technology, and LAB will provide technical expertise.

Competition from big players: - SMEs across the globe face intense competition from bigger players; and such competitions do turn ugly sometimes. Bigger players always create entry barriers for smaller players, and they make use of their size and contacts to negate any possible competition from smaller players. It gets very difficult for the SMEs to command any brand loyalty towards their products as they find it extremely difficult to compete with established brands in the market. First of all they do not have the monetary power to come up with extensive advertisements across all forms of media like the bug brands. Therefore it becomes difficult for them to create awareness amongst the customers about their offerings. Manpower Shortage: - SMEs invariably face acute manpower shortage once they decide to expand. Most of the SMEs do not have a dedicated HR department, so no human resource planning is ever done. They face higher attrition too, which leads to manpower shortage. They either depend on their current employees to find out new employees to fill vacant positions, or they have to depend on external agencies to help them fill positions. External agencies are also not very effective, and sometimes there is a lack of job or culture-fit between the company and incoming employees. Training employees on new technologies is also a big issue. Various factors like financial status of company, training costs, manpower shortage etc affect the staff training. As per a study done in Malaysia, major factors affecting Staff training are as follows:-

SMEs are of the view that external training will affect the work flow and hence, productivity of the company. Therefore SMEs believe in on-job-training instead of external training. Suggestions:In developing countries, SMEs are the new growth drivers. They are contributing to the development of third world economies, and due to higher growth rates, help display a better picture of such countries, which helps attract foreign investments. Hence the onus of funding their expansion plans lies to a great extent on their respective governments. The Malaysian government has constituted an agency named SME Corp. aimed at providing assistance to SMEs in various growth phases of their lifecycle. SME Corp. has launched two programs called Business Accelerator Program and Enrichment and Enhancement aimed at providing assistance to SMEs not just in financing, but also in other issues faced by them. Once finance is available, issues like technology use, inefficient marketing strategy, constraints on modernization and expansion and manpower shortage can also be handled to a great extent. Government must also help SMEs in providing adequate training to its staffs and expose them to cutting edge technology, so that they can compete with bigger players within the country and across the globe in a better manner, thereby driving growth of the economy. Government must help SMEs get patents on their innovation faster. They should set up a separate division aimed at helping SMEs understand legal issues involved in patents and clearly explain them the exact procedure in getting patents for their technological innovations. Some specific suggestions may be given as under: Marketing: During the course of our research, SMEs were resorting to some of the newer trends to overcome their marketing challenges. E-commerce was considered to be a desirable option for them given its low cost and ease of setup and the soya manufacturer we interviewed was actively considering rolling out an e-commerce model in order to increase company visibility and increase sales through its other channels as well. Under the ecommerce umbrella, the

companies were considering multiple options like setting up its own independent website and negotiating with e-tailing vendors to stock their products. Realizing the need to reach out to the younger generation through this platform, the companies were also considering investing in maintaining their own Facebook pages, YouTube accounts and a Flickr accounts to give the company a dominant presence on the online space. SMEs can leverage their small size to build stronger relationships with their relatively small base of valued customers. Thus by implementing a focus strategy, they can ensure customer loyalty by focusing on fewer customer needs and serving them effectively. Operational inefficiency: Many of the companies we studied were aware of the issues brought about by inefficient operational practices and were considering investing in different measures to enhance: a) production efficiency via automation and b) energy efficiency. Some of the companies we studied were considering automating major parts of their manufacturing processes. As mentioned previously, financing would be one of the major concerns for SMEs that are interested in such projects. But more than financing, a clear pay -off analysis needs to be carried out before committing the SMEs limited funds to these major expenditures. Energy efficiency can be accomplished at low cost by carrying out energy audits to determine sources of energy inefficiency and then investing systematically in upgrading their equipment to reduce the same. Although investing in renewable sources like solar energy and biomass can reduce diesel genset costs, they would need a considerably long period to pay off their initial investment. HR policies: SMEs face a very high attrition and manpower shortage. To tackle issue of high attrition, SMEs, especially those working in services sectors, should subcontract or outsource some of its work. It will not only ensure presence of manpower when needed, but also help SMEs deal with uneven demand and demand cycles in services sector. Companies in manufacturing should focus on training and knowledge transfer, so that employee attrition may not stall jobs that require special skills. Manpower shortage is another big issue for SMEs. This issue occurs primarily due to expansion plan coupled with lack of HR planning. SMEs should focus on HR planning and at least forecast staff demand one or two years in advance, to avoid manpower shortage. Using services of an external HR agency to work on demand forecasting, and ensuring fill rates can be other ways that can be used to avoid unnecessary costs, and to ensure that manpower demand is met. Note on SME E-commerce strategies SMEs are increasingly finding the online route to be a cost effective method to reach out to their potential customers. However, e-commerce involves much more than just developing a website and waiting for the customers to order. Given the recent proliferation of social media and tools

like Flickr and YouTube, SMEs are using them in innovative ways to market their products. Some of methods by which ecommerce strategies are being implemented are: Content Syndication and RSS: Content Syndication is a technical application that enables websites to display current content of some other authority without leaving the original website. RSS feeds provide updated news headlines, blog posts or selected website content. The advantage of such a tool is to provide credible and updated news on products to customers browsing the website/Facebook page/blog. Image sharing: Image sharing provides value by providing images that users can easily place on websites, blogs or other social media sites. More than 100 million photos a day are uploaded to Facebook, and SMEs can take advantage of this trend by providing visual images of their products to their followers. This will reinforce the benefits of their products. Flickr has become the choice tool for many SMEs to act as a repository of their images which can be shared by any visitor. Thus the company may link their web site/blog/Facebook page to their Flickr photostream and increase visibility. Video Sharing: Using video sharing sites like YouTube will help to provide an engaging experience for consumers as online video viewing continues to increase on both traditional and mobile sites. Videos may be related to products themselves, or even to production processes or sometimes the history of the product/company. Besides involving customers, SMEs can gain a lot from viewer comments and opinions on their videos, which can further increase their knowledge of the customers needs. Mobile Applications: Owing to the proliferation of smartphone devices, developing an app is a useful, albeit expensive way to engage customers. Two types of apps may be considered: Functional and fun apps. Fun apps may be used connect to youth/children to generate primary interest/demand by providing engaging games featuring interesting characters which are somehow linked to companys products. Functional apps serve the purpose of providing factual information about their products. Facebook page: FB pages can be utilized in multiple ways to engage readers. It may include videos/RSS/images/links to blogs, and have regular contests like cartoon caption etc. to generate interest coupled with quizzes, widgets, games, applications, images. Online followers may be encouraged to share and cross-promote using other social media channels and web pages. Overall online Strategy for an SME: With an aim of generating consumer interest by offering a powerful value proposition, the SME can use the following step-wise plan to develop an online bouquet of offerings to engage and delight their customers

Basic Overview of Various Strategic Planning Models


Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC. Adapted from the Field Guide to Nonprofit Strategic Planning and Facilitation. (The reader might best be served to first read the information in the topic Strategic Planning.)

Sections of This Topic Include


Many Approaches to Strategic Planning ... It Depends Model Model Model Model Model Model One - Vision-Based or Goals-Based Strategic Planning Two - Issues-Based Planning Three -- Alignment Model Four - Scenario Planning Five - Organic (or Self-Organizing) Planning Six - Real-Time Planning

Also see Related Library Topics

Also See the Library's Blogs Related to Strategic Planning Models


In addition to the information on this current page, see the following blogs which have posts related to Strategic Planning Models. Scan down the blog's page to see various posts. Also see the section "Recent Blog Posts" in the sidebar of the blog or click on "next" near the bottom of a post in the blog. Library's Library's Library's Library's Business Planning Blog Leadership Blog Project Management Blog Strategic Planning Blog

Simply put, strategic planning determines where an organization is going over the next year or more, how it's going to get there and how it'll know if it got there or not. The focus of a strategic plan is usually on the entire organization, while the focus of a business plan is usually on a particular product, service or program. There are a variety of perspectives, models and approaches used in strategic planning. The way that a strategic plan is developed depends on the nature of the organization's leadership, culture of the organization, complexity of the organization's environment, size of the organization and expertise of planners. If you need more help,

see our strategic planning services.

UNDERSTANDING STRATEGIC PLANNING


Introduction -- What is Strategic Planning?
There Are Various Different Views and Models -- and the Process You Use Depends

Simply put, strategic planning determines where an organization is going over the next year or more, how it's going to get there and how it'll know if it got there or not. The focus of a strategic plan is usually on the entire organization, while the focus of a business plan is usually on a particular product, service or program. There are a variety of perspectives, models and approaches used in strategic planning. The way that a strategic plan is developed depends on the nature of the organization's leadership, culture of the organization, complexity of the organization's environment, size of the organization, expertise of planners, etc. For example, there are a variety of strategic planning models, including goals-based, issues-based, organic, scenario (some would assert that scenario planning is more of a technique than model), etc. 1) Goals-based planning is probably the most common and starts with focus on the organization's mission (and vision and/or values), goals to work toward the mission, strategies to achieve the goals, and action planning (who will do what and by when).

2) Issues-based strategic planning often starts by examining issues facing the organization, strategies to address those issues and action plans. 3) Organic strategic planning might start by articulating the organization's vision and values, and then action plans to achieve the vision while adhering to those values. Some planners prefer a particular approach to planning, eg, appreciative inquiry. Some plans are scoped to one year, many to three years, and some to five to ten years into the future. Some plans include only top-level information and no action plans. Some plans are five to eight pages long, while others can be considerably longer. Quite often, an organization's strategic planners already know much of what will go into a strategic plan (this is true for business planning, too). However, development of the strategic plan greatly helps to clarify the organization's plans and ensure that key leaders are all "on the same script". Far more important than the strategic plan document, is the strategic planning process itself. Also, in addition to the size of the organization, differences in how organizations carry out the planning activities are more of a matter of the nature of the participants in the organization -- than its for-profit/nonprofit status. For example, detail-oriented people may prefer a linear, top-down, general-to-specific approach to planning. On the other hand, rather artistic and highly reflective people may favor of a highly divergent and "organic" approach to planning.
Some Basic Descriptions of Strategic Planning -- and a Comparison to Business Planning

What is Strategic Planning? Are You Doing Strategic Planning Already? (Probably ...) Strategic Planning or Business Planning? (a comparison of the two) The Difference Between Strategic Planning & Financial Planning Metaphors Be With You: The Strategist as Poet

Some Different Models of Strategic Planning

Basic Overview of Various Strategic Planning Models Should I Use Goals-Based or Issues-Based Planning? The Organic Model of Strategic Planning Scenario Planning: A Prudent Activity for Any Organization Strategic Intuition The Drivers Model: The Secret to Facilitating Strategy Anatomy of the Drivers Model NOTE: Much of the following information is in regard to goals-based strategic planning, probably the most common form of strategic planning. However, issues-based planning is also a very popular approach to strategic planning - an approach still too-often forgotten.
For-Profit Versus Nonprofit Strategic Planning

Major differences in how organizations carry out the various steps and associated activities in the strategic planning process are more of a matter of the size of the organization -- than its for-profit/nonprofit status. Small nonprofits and small for-profits tend to conduct somewhat similar planning activities that are different from those conducted in large organizations. On the other hand, large nonprofits and large for-profits tend to conduct somewhat similar planning activities that are different from those conducted in small organizations. (The focus of the planning activities is often different between for-profits and nonprofits. Nonprofits tend to focus more on matters of board development, fundraising and volunteer management. For-profits tend to focus more on activities to maximize profit.) Therefore, the reader is encouraged to review a variety of the materials linked from this page, whether he or she is from a nonprofit or for-profit organization. Items below are marked as "nonprofit" in case the reader still prefers to focus on information presented in the context of nonprofit planning. (An upcoming section includes numerous overviews of the overall strategic planning process Various Overviews )

Benefits of Strategic Planning


Strategic planning serves a variety of purposes in organizations, including to: 1. Clearly define the purpose of the organization and to establish realistic goals and objectives consistent with that mission in a defined time frame within the organizations capacity for implementation. 2. Communicate those goals and objectives to the organizations constituents. 3. Develop a sense of ownership of the plan. 4. Ensure the most effective use is made of the organizations resources by focusing the resources on the key priorities. 5. Provide a base from which progress can be measured and establish a mechanism for informed change when needed. 6. Listen to everyones opinions in order to build consensus about where the organization is going. Other reasons include that strategic planning: 7. Provides clearer focus for the organization, thereby producing more efficiency and effectiveness. 8. Bridges staff/employees and the board of directors (in the case of corporations). 9. Builds strong teams in the board and in the staff/employees (in the case of corporations). 10. Provides the glue that keeps the board members together (in the case of corporations). 11.Produces great satisfaction and meaning among planners, especially around a common vision. 12. Increases productivity from increased efficiency and effectiveness. 13. Solves major problems in the organization.

Also See
Strategic Planning in Tough Times -- It's Not Discretionary at All

When Should Strategic Planning Be Done?


The scheduling for the strategic planning process depends on the nature and needs of the organization and the its immediate external environment. For

example, planning should be carried out frequently in an organization whose products and services are in an industry that is changing rapidly . In this situation, planning might be carried out once or even twice a year and done in a very comprehensive and detailed fashion (that is, with attention to mission, vision, values, environmental scan, issues, goals, strategies, objectives, responsibilities, time lines, budgets, etc). On the other hand, if the organization has been around for many years and is in a fairly stable marketplace, then planning might be carried out once a year and only certain parts of the planning process, for example, action planning (objectives, responsibilities, time lines, budgets, etc) are updated each year. Consider the following guidelines: 1. Strategic planning should be done when an organization is just getting started. (The strategic plan is usually part of an overall business plan, along with a marketing plan, financial plan and operational/management plan.) 2. Strategic planning should also be done in preparation for a new major venture, for example, developing a new department, division, major new product or line of products, etc. 3. Strategic planning should also be conducted at least once a year in order to be ready for the coming fiscal year (the financial management of an organization is usually based on a year-to-year, or fiscal year, basis). In this case, strategic planning should be conducted in time to identify the organizational goals to be achieved at least over the coming fiscal year, resources needed to achieve those goals, and funded needed to obtain the resources. These funds are included in budget planning for the coming fiscal year. However, not all phases of strategic planning need be fully completed each year. The full strategic planning process should be conducted at least once every three years. As noted above, these activities should be conducted every year if the organization is experiencing tremendous change. 4. Each year, action plans should be updated. 5. Note that, during implementation of the plan, the progress of the implementation should be reviewed at least on a quarterly basis by the board. Again, the frequency of review depends on the extent of the rate of change in and around the organization.

Various Overviews of Strategic Planning Processes and Samples of Strategic Planning Process
NOTE: Although there are separate sections listed below for many of the major activities in strategic planning (for example, the sections "Developing a Mission", "Developing a Vision", etc.), this section "Various Overviews of Strategic Planning" also includes information about those activities as well. The reader might scan 8-10 of the articles to get a basic feel for strategic planning processes and the diversity of views on the processes. However, do not conclude that you can learn the most important aspects of strategic planning by reading some of the following articles -- many of them are by authors who write about certain aspects of strategic planning, but not all aspects, so be sure to review resources in other subtopics of this overall topic of strategic planning.

Many Approaches to Strategic Planning ... It Depends


There is no one perfect strategic planning model for each organization. The approach, or model, for strategic planning depends on:

The purpose of strategic planning, for example, if planning is meant to add a new product or program, then the process will probably include market research to verify the need, markets, pricing, etc., for the new product or service. .

Whether the organization has done planning before, for example, if the organization has not done planning before, then extensive attention to mission, vision and values statements is probably warranted.

The culture of the organization, for example, some cultures might prefer a "linear" approach from mission, vision, values, quantified goals, strategies, action plans, financial analysis, etc. Other cultures might prefer a more organic and unfolding approach, such as telling stories.

Whether the environment of the organization is changing rapidly, for example, if the environment is changing rapidly, then planning should probably be a shorter term than for an organization who's environment is fairly stable.

Whether the organization has had success in planning in the past, for example, if an organization has done planning in the past, but planners do not believe it was successful, then the organization should perhaps undertake a simple, short-term planning process for now.

Each organization ends up developing its own nature and model of strategic planning, often by selecting a model and modifying it as they go along in developing their own planning process. The following models provide a range of alternatives from which organizations might select an approach and begin to develop their own strategic planning process. Note that an organization might choose to integrate the models, e.g., using a scenario model to creatively identify strategic issues and goals, and then an issues-based model to carefully strategize to address the issues and reach the goals.

Model One - Vision-Based or Goals-Based Strategic Planning


This very basic process is typically followed by organizations that are extremely small, busy, and have not done much strategic planning before. The process might be implemented in year one of the nonprofit to get a sense of how planning is conducted, and then embellished in later years with more planning phases and activities to ensure well-rounded direction for the nonprofit. Planning is usually carried out by top-level management. The basic strategic planning process includes: 1. Identify your purpose (mission statement) - This is the statement(s) that describes why your organization exists, i.e., its basic purpose. The statement should describe what client needs are intended to be met and with what services, the type of communities are sometimes mentioned. The top-level management should develop and agree on the mission statement. The statements will change somewhat over the years. 2. Establish a vision statement - This statement describes the future state of your customers/clients and your organization at some point in the future.

3. Select the goals your organization must reach if it is to effectively work toward your mission and achieve your vision - Goals are general statements about what you need to accomplish to meet your purpose, or mission, and address major issues facing the organization. The vision and goals might be long-range, for example, for 3-5 years into the future. 4. Identify specific approaches (or strategies) that must be implemented to reach each goal - The strategies are often what change the most as the organization eventually conducts more robust strategic planning, particularly by more closely examining the external and internal environments of the organization. Small organizations might not refer to strategies and, instead, go the next step about action planning for each goal. 5. Identify specific action plans to implement each strategy (or objectives to achieve each goal) - These are the specific activities or objectives that each major function (for example, department, etc.) must undertake to ensure its effectively implementing each strategy (or achieving each goal). Objectives should be clearly worded to the extent that people can assess if the objectives have been met or not. Ideally, the top management develops specific committees that each have a work plan, or set of objectives. 5. Compile the mission, vision, strategies and action plans into a Strategic Plan document.Ensure that upper management approves the Plan. 6. Monitor implementation of the Plan and update the Plan as Needed - Planners regularly reflect on the extent to which the goals are being met and whether action plans are being implemented. Perhaps the most important indicator of success of the organization is positive feedback from the organizations customers.

Model Two - Issues-Based Planning


Organizations that have very limited resources; several current, major issues; little success with achieving future-oriented goals; or very little buy-

in to strategic planning might use the issues-based approach to planning instead of the goals-based approach. 1. Identify the current, major issues facing the organization. Write down 3-5 major issues. 2. Brainstorm ideas to address each major issue. It's not important that the ideas be the perfect ideas -- it's important for now to identify at least a reasonable approach to address each issue. The issues and ideas are usually short-range, for example, for 9-12 months in to the future. 3. Compile the issues and ideas into a Strategic Plan document. Ensure that upper management approves the Plan. 4. Monitor implementation of the Plan and update the Plan as Needed - Planners regularly reflect on the extent to which the goals are being met and whether action plans are being implemented. Perhaps the most important indicator of success of the organization is positive feedback from the organizations customers.

Model Three -- Alignment Model


The overall purpose of the model is to ensure strong alignment among the organizations mission and its resources to effectively operate the organization. This model is useful for organizations that need to fine-tune strategies or find out why they are not working. An organization might also choose this model if it is experiencing a large number of issues around internal efficiencies. Overall steps include: 1. The planning group outlines the organizations mission, programs, resources, and needed support. 2. Identify whats working well and what needs adjustment. 3. Identify how these adjustments should be made. 4. Include the adjustments as strategies in the strategic plan.

Model Four - Scenario Planning


This approach might be used in conjunction with other models to ensure planners truly undertake strategic thinking. The model may be useful, particularly in identifying strategic issues and goals. 1. Select several external forces and imagine related changes which might influence the organization, e.g., change in regulations, demographic changes, etc. Scanning the newspaper for key headlines often suggests potential changes that might effect the organization. 2. For each change in a force, discuss three different future organizational scenarios (including best case, worst case, and OK/reasonable case) which might arise with the organization as a result of each change. Reviewing the worst-case scenario often provokes strong motivation to change the organization. 3. Suggest what the organization might do, or potential strategies, in each of the three scenarios to respond to each change. 4. Planners soon detect common considerations or strategies that must be addressed to respond to possible external changes. 5. Select the most likely external changes to effect the organization, e.g., over the next three to five years, and identify the most reasonable strategies the organization can undertake to respond to the change.

Model Five - Organic (or Self-Organizing) Planning


Traditional strategic planning processes are sometimes considered mechanistic or linear, i.e., theyre rather general-to-specific or causeand-effect in nature. For example, the processes often begin by conducting a broad assessment of the external and internal environments of the organization, conducting a strategic analysis (SWOT analysis), narrowing down to identifying and prioritizing issues, and then developing specific strategies to address the specific issues.

Another view of planning is similar to the development of an organism, i.e., an organic, self-organizing process. Certain cultures, e.g., Native American Indians, might prefer unfolding and naturalistic organic planning processes more than the traditional mechanistic, linear processes. Self-organizing requires continual reference to common values, dialoguing around these values, and continued shared reflection around the systems current processes. General steps include: 1. Clarify and articulate the organizations cultural values. Use dialogue and story-boarding techniques. 2. Articulate the groups vision for the organization. Use dialogue and storyboarding techniques. 3. On an ongoing basis, e.g., once every quarter, dialogue about what processes are needed to arrive at the vision and what the group is going to do now about those processes. 4. Continually remind yourself and others that this type of naturalistic planning is never really over with, and that, rather, the group needs to learn to conduct its own values clarification, dialogue/reflection, and process updates. 5. Be very, very patient. 6. Focus on learning and less on method. 7. Ask the group to reflect on how the organization will portray its strategic plans to stakeholders, etc., who often expect the mechanistic, linear plan formats.

Model Six -- Real-Time Planning


Many experts assert that conventional strategic planning has become rather out-dated because the world is changing much more rapidly than before, to the extent that conventional (especially long-range) plans quickly become obsolete. These experts might assert that planning be done continuously, or in "real time." The process might look like the following:

1. Initial discussions to clarify mission, vision and values. Ideally, these are documented, such that changes are easily recognized and communicated. 2. Discussions in, for example, Board and staff meeting that clarify current, major priorities. It's important that these discussions be based not only on people's current opinions, but that they also be based, as much as possible, on verified impressions from accurate data, for example, from environmental scans, market research, brainstorming or product/program evaluations. It's important that the updated/changed priorities also be documented. A challenge in this type of planning is that many investors and funders expect to see "stable" documented strategic plans. Many might infer that regular changes are the result of poor planning, rather than from a new type of strategic planning.

STRATEGIC PLANNING IN INDIA

*Shanmukha Rao. Padala **Dr. N. V.S. Suryanarayana

An Introduction:

RELATED ARTICLES WAHID'S PHILOSOPHY- THE EXAMINED & CAREFUL CONSIDERATION OF STRATEGIC PLANNING AGAINST BUSINESS PLANNING David M. Palmer, William Allan Kritsonis, Strategic Planning, Ways of Knowing Through the Realms of Meaning by William Allan Kritsonis, Schooling WAHID'S JUDGMENT - DIFFERENCE STRATEGIC PLAN AS OPPOSED TO AN OPERATIONAL PLAN Implementing Strategic Planning in K-12 by Carmelita Thompson and William Allan Kritsonis, PhD Program in Educational Leadership, PV, Texas A&M System Corporate planning had its genesis in India sometimes in the sixties when a number of subsidiaries of multinational companies introduced the process in compliance with their parent companies' directives. Since then quite a few companies have introduced formal planning for a variety of reasons. Some introduced it because their top managements felt that it would help them long term objectives; some introduced it because of a fad, not wanting to be behind by others, and some others because were directed to do so. Many public sector enterprises adopted corporate planning because they were to do so by the Bureau of public Enterprises, the governmental body that regulates all public enterprises. Despite the facts that are now quite a few firms which have introduced corporate planning, such firms still constitute a small minority.

On the academic side, research in India on strategic planning has not taken off. There are very few studies on corporate planning practices in India firms. Of late some leading Indian management education institutions have begun to offer short duration executives development programmes on corporate planning. A quick examination of the teaching materials used in these programmes clearly shows a predominance of materials originally developed in the United States. This is not surprising because

strategic planning at the enterprise level had its genesis there. Strategic planning or corporate planning is a management process which enable a firm's management to explore the future impact of change and make current decisions to move towards the envisioned future. The Western economies, characterized by a rapid rate of change and fierce competition became an ideal home for the development of the concept of corporate planning. The Indian economy till recently provided protection to firms from change through a plethora of regulations which did not provide an impetus for the development of a planning orientation. However, this scenario is changing rapidly as a result of increasing liberalization effected by the Government in its policies towards industry. A number of industries are now characterized by a high degree of competition, e.g., textile, television, passenger car, two-wheeler, commercial vehicles, cable, paint etc. It is therefore very likely that strategic planning will be adopted by many firms in the near future.

The Indian Scenario:

Management education received a big boost in early 60s after the setting up of Indian Institute of Management (IIMs) and the Administrative Staff College of India. IIMs structured their curriculum along the followed in reputed American business schools. The case method of study (as followed in Harvard Business School) was an important pedagogical tool, employed in IIM, Ahmedabad all these years. But in India the Mater of Business Administration program is first introduced by the Andhra University. Successively several university departments, meanwhile, have started the Masters in Business Administration (MBA) programmes at various locations throughout the country. After the opening up of the Indian economy in early 90s, the All India Councial for Technical Education (AICTE) was set up to provide proper direction to the growth of management education. The Business Policy and strategic Management Course has gained wider acceptance as an integrative as an discipline in over 1500 management institutes that have come up in the recent past (1990-2003). A number of doctoral and post doctoral studies have also been undertaken with a view to enrich the knowledge in the area, especially with a clear focus on Indian companies. A professional association called Strategic Management Forum of India has also been formed in 1996- which is exclusively devoted to the development of issues relating to strategic management. A number of publications covering the concepts, techniques and case studies relating to business policy and strategic management have also gone up impressively, especially after 90s, such as Strategic Marketing, Business Standards strategist etc.

STRATEGIC PLANNING AT BHEL:

Bharat Heavy Electricals Limited (BHEL) is a highly diversified public sector. Undertaking operating in a number of business sectors: energy, industry, and transportation. Corporate planning at BHEL follows the general pattern in other public sectors enterprises in India. Public enterprises in the country have emerged as a part of the national planning exercises At the time of the inception of many of the Public Sector Enterprises (PSE 's),detailed feasibility reports with a long term orientation were prepared .However, there were no built in contingency plans for tackling uncertainties and discontinuities. When these Public Sectors Enterprises reached a stage when the original concepts forecasts were no longer applicable as a consequence of environmental changes, they faced enormous problems .Enterprises operating in high technology areas and which had a high investment found it extremely difficult to cope with changing environment .BHEL was no exception .However, it was able to overcome the problem by adopting comprehensive corporate planning .Planning had commenced at BHEL from the very beginning .Till 1969, planning was done with a short-term orientation .The real efforts in the direction of long-term planning were started during 1970-71. It was during this period that an Action Committee consisting of various PSE s including BHEL. The committee suggested a reorganization, including the merger of Heavy Electricals India Limited (HEIL) with BHEL An analysis of the corporation's strengths and weaknesses, and the opportunities and threats that were present in the external environment was undertaken and a detailed action plan was developed for achieving rated capacity .Beginning in 1973-74 efforts were made to built systems for comprehensive planning, programming and budgeting. A Corporate plan was developed and circulated among executives. Initially, revenue budgets for each division were prepared for two-years so as to achieve linkage between short-term and long-term plans. Frequent discussions were held, functional and cross-functional committees were appointed for achieving integration between head office and the divisions. The organization's structure was changed to transform the company from manufacturing orientation to an engineering orientation with an increased emphasis on marketing. A Corporate Planning and Development division was created at the corporate level with each division having its own planning and development cell.

The Corporate Planning and Development Division was placed under the charge of an Executive Director. The division was organized around the following groups: investment and facilities planning long range planning, operations planning, and optimization and modeling. The investment and facilities planning group was responsible for company-wide investment programmes.

Various activities included project formulation and appraisal, coordination of review committees, project monitoring and preparation of annual capital projects. The long-range planning group was responsible for environmental analysis, review and appraisal of long term plans, review of integrating devices, transfer of technology, collaboration, subject licensing and training. Operations planning included analysis of performance budgets, coordination of operations, monitoring, project management studies for industrial projects, production coordination and materials management. The optimization and modeling group was responsible for undertaking the development of various models using quantitative techniques and studies relating to optimal utilization and scheduling of machines and facilities, investment analysis and energy modeling.

The role of the Corporate Planning and Development Dision could be summarized thus:

i)

Planning for modernization and expansion of manufacturing;

ii) Development of technology management capability in the context of rapid rate of technological obsolescence,

iii)

Assisting in the development, review and evaluation of product plans,

iv) Synthesizing divisional plans and product plans into the sectoral plans and weaving them together as a corporate plan,

v)

Introduction of contingency planning in all areas,

vi)

Improving planning capability at the divisional level,

vii) Providing assistance in the preparation of functional plans, viz., engineering plans, technology plans, etc.

viii)

Undertaking organizational studies,

ix)

Strategic management development,

x)

Monitoring of divisional performance,

xi) Enhancing information processing capability and analysis of environmental conditions.

The Corporate Planning and Development Division was responsible for directing and coordinating the total planning activity in the organization. But the basic inputs into the plan were generated by the activity in the organization. But the basic inputs into the plan were generated by the various units. Each division prepared its long term plans keeping in view its relevant environment. Each division also developed product plans, which included an analysis of technological gaps and action required for bridging the gaps. Based on these technology plans of the units, a corporate technology plan was prepared which provided direction for technology acquisition and/or development. Product plans and divisional plans were reviewed, evaluated coordinated and integrated into sectoral plans.

PLANNING APPROACHES AND CHARACTERISTICS:

The short description of the corporate planning process at BHEL provided some glimpses into its complexities. The experience of BHEL is not typical because organizations of the nature and experience of BHEL is not typical because organizations of the nature and complexity of BHEL are not too many in the country. Corporate planning systems vary from organization to organization depending on a variety of factors: environmental conditions, organizational size and complexity, age, top management values and styles, initial trigger for the commencement of planning, etc.

Variations in the corporate planning systems across organizations may be found first the top doing corporate planning. These approaches may be any of the four types: topdown approach, bottom-up approach, hybrid between top-down and bottom-up approaches, team approach.

Top-down Approach: Firms adopting this approach plan at the top and the various departments are supposed to do what they are told to do by the top management.

Bottom-up Approach: In firms adopting this approach the top management asks the departments or divisions to submit their plains are then reviewed by the top management and accepted or sent back to the organizing departments or divisions for modification. The consolidated divisional plans in the case of a decentralized company may not add up to the management's targets. Additional plans are then required to be prepared which might necessitate planning for acquisitions or diversification into highly unrelated business areas.

Hybrid Approach: A combination of top-down and bottom-up approaches is the approach which is generally used in decentralized companies. In firms using this approach the top management provides certain guidelines to the divisions or strategic business units (SBU). The SBUs are distinct business with their own set of resources that can be managed in a manner reasonably independently of other business within a firm. The top management guidelines are sufficiently broad to permit flexibility to the SBUs in developing their plans. There is a vertical communication between the top management and the divisions or SBUs at different phases of the planning process. Broad objectives, policies and strategies may be arrived at through a dialogue and negotiation between the top management and the divisional or SBUs managers.

Team approach: In small centralized firms where lateral communication between the top managers is easier than in large decentralized firms, the chief executive may himself, in collaboration with the senior managers, prepare corporate plans. In some very large firms also this practice has been found to exist.

Differences, in the planning systems in organizations may be in term of the approaches adopted, as noted earlier, and also the dimensions given below:

Completeness of planning Cycle Depth of Analysis Degree of Formality Use of staff and Corporate Planning Specialists Linkage among Plans Methods of introducing planning Degree of documentation Participation of people Role of the CEO SUMMARY:

Strategic planning involves an extended time-frame, the development of a large percentage of the resources of an organization, a wide spectrum of activities and a major eventual impact. By merging the two models of planning, long-range planning and environmental scanning to form an interrelated model- the Strategic Planning Model was formed. The Strategic Planning Model is a tool that helps an organization in setting up goals or objectives; the analysis of the environment and the resources of the organization; the generation of strategic options and their evaluation; and the planning, design and implementation of control systems or monitoring mechanisms. Three dimensional structure of organization requires strategic planning, operational planning and tactical planning at respective levels. Many organizations develop strategies at three different levels; corporate- level strategic planning, business- level strategic planning and functional- level strategic planning.

Several enterprises in India, both in the private and public sectors, have introduced strategic planning in their organizations. With increasing liberalization of government policies and consequently the enhancement role of competition, corporate planning in India is likely to pick up greater momentum in the future. BHEL is one of the earliest enterprises to adopt strategic planning. Engaged in diversified business sectors like energy, industry and transportation, the company, with the help of strategic planning, has been able to come to grips with problems of uncertainties created by

changing technological and socio-economic environment. In the initial phases, strategic planning in BHEL had short-term orientation. However, in recent times this had changed into quite a long-term one. Besides, strategic plans are comprehensively prepared. The company views itself note merely a manufacturing company but an engineering company with emphasis on marketing. The corporate planning and development division, which is organized around various functions, is responsible for total corporate planning activity in the organization.

ABOUT THE AUTHOR More Sharing ServicesShare Subscribe to RSS Contact Author P.S.Rao., NVS.Suryanarayana P.S.Rao., NVS.Suryanarayana Dr. SHANMUKHA PADALA : The author is a well qualified and posses Vast teaching experience in Field of Management. He has great interest in the field of Human Resource Management and Accountancy. Now he is working as Faculty in the Department of Commerce and Management Studies, Andhra University Campus, Vizianagaram. He participated in several National and International Seminars, Workshops, Symposias, FDP Programmes and published rich number of articles in reputed journals. E-Mail: srpadaslaau@gmail.com and Mobile : +91 94403 23606.

2. Dr. N.V.S.SURYANARAYANA : The author is an eminent person in the field of Education. Presently he is working as Faculty in the Department of Education, Andhra University Campus, Vizianagaram. He has rich experience in the field of Teacher Education about a decade at Post Degree and PG level. He is very much fascinated to Psychology and posess much interested in Educational Psychology and Guidance & Counseling. He participated in so many National and International Seminars, Workshops, Refresher Courses, Symposia's and published so many articles in reputed Journals. He produced a number of M.Ed and M.Phil Dissertations.He wrote so many books on recent trends in education and innovative Psychological concepts. He is

having Lifetime memberships in various alleged Associations. E-Mail: suryanarayananistala@yahoo.in, Mobile : +91 94403 48609, +91 7893136613. Res. (08922) 229339