Strategic Positioning for Small Businesses
What is Strategy?
‘Strategy’ is a buzzword that is used in many different situations to describe different ideas. For example, everyone of us has heard things like, developing long-term strategic objectives for the company, strategy for delivering final product to the customer by next week, finalizing strategy to select the best supplier before the end of the quarter, etc. The problem is that most of the time in business lingo the term strategy is misused to an extent that it is difficult for a reader to tell apart the correct usage. So, let’s begin by defining the term. Strategy refers to long-term direction of an organization which is based on its vision and is executed through certain actions. Based on this definition, we can now determine that the first among the given examples illustrates the correct usage of the term (provided that the word ‘long-term’ really means what it says).
Why Does it Matter?
Every organization, big or small, for-profit or not-for-profit, has a strategic purpose. Small businesses, just like big corporations, must have a specific purpose that would guide their strategy. If there is a disconnect between the purpose of an organization and the course of action it adopts, the direction it will take in the long run may not be the same as proposed by the strategic vision. Let’s consider an example: a small business chooses to hire a highly experienced executive with a business degree from a top school. The executive is supposed to take charge of the business, provide a strategic direction to the organization, and increase value of the overall operations. Sounds like a perfect recipe, right? Now consider this: say it was a family business with the purpose of providing a steady income for new generations while retaining control of the business within the family. Does hiring the external, experienced executive still sound like a good choice? What would happen if the said executive moved to a different organization taking all the experience with them? Wouldn’t it have been better to appoint a family member to the role while hiring services of an executive coach or consultant who would train and prepare the incumbent to assume responsibilities of the position?
The above example illustrates the importance the alignment of an organization’s purpose with the strategic decisions it takes. A decision that would make perfect sense in one situation may be counterproductive in another.
Alignment with Organizational Capabilities
There are multiple businesses out there (I will not name any) which were started with a vision that was not aligned with the strategic capabilities of the organization. Due to this misalignment, these capabilities were not leveraged, and these businesses were acquired by other companies. What led to the acquisition of these companies was recognition of the latent, unrealized value of such capabilities. All that the acquirer had to do was to bring harmony between the strategy and capabilities and the same organization thrived under the new leadership with a different strategic vision.
It is critical to find this harmony not only for optimal performance but also for the very survival of an organization. If a small accounting firm wants to become a top audit firm within its niche, but the predominant capability and skill set of the current staff is in bookkeeping, maybe the company needs to reset its vision and focus on becoming a top choice for outsourced bookkeeping operations (assuming that it wants to retain the existing professionals with current skill set). In order to ensure this alignment, a business must identify and analyze these capabilities (generally a VRIO analysis would be used for this purpose but since the elements of rarity and inimitability might not be relevant for a small business in most cases, an analysis of value and organizational support should be sufficient).
Strategy and Environment
Perhaps the biggest consideration a small business should have while positioning itself strategically, is the external environment. The reason being that small businesses are extremely vulnerable to major environmental changes. While big corporations have means and resources to cushion the effects of a major disruption posed by the environment, small businesses generally lack such resources. This makes them prone to the danger of a slump or even total obliteration. Current COVID-19 pandemic is the most notable example of an environmental change. While big corporations resorted to measures like massive job cuts and layoffs to maintain a balance between revenues and expenses, many small businesses had to close down since they did not have any alternative. Disruptive innovation is another example that can significantly impact the operations of a small business. For example, business for mail order merchants changed altogether when e-commerce came in vogue.
The silver lining is that small businesses have way greater agility as compared to large, complex organizations. They have a choice to either modify their operations, embrace change and serve the current market, or to shift their focus to a different clientele and find something else in line with their competencies in order to serve the new market. There is no cookie-cutter recipe when it comes to such a decision and each business needs to take its unique circumstances into consideration before choosing a course of action.
Impact of Culture
Organizational culture is a system of values and beliefs that shape the behaviours and assumptions of people working in an organization. Large corporations have a complex culture where the values communicated in organizational publications, website, displayed artifacts, etc. may or may not represent its true culture. While browsing for available positions, many of us might have come across companies with bad reviews for a number of reasons such as mistreatment of employees, lack of trust in leadership, culture of dirty politics and rivalries, etc. None of these companies have a value statement which indicates that employees are not given any recognition for their good work, or that the leadership practices an authoritarian management style.
Culture in smaller businesses is way simpler than that in larger corporations. Employees are generally close knit and communication with organizational leadership is more open. Values and belief systems are pretty well known to everyone in the organization. Unlike large companies which might have distinct subcultures within a different departments or divisions, small businesses are characterized by cultural homogeneity.
Now, the element of culture has a close relationship with the overall organizational strategy. Let’s say, if the culture of an organization is characterized by the values of open exchange of ideas, creativity, innovation, continuous improvement and readiness for change, the business strategy should not focus on a product or service that is highly regulated and must strictly follow certain standards without any room for deviation.
In short, when a small business needs to take a decision regarding its strategic positioning, it must take all these factors into account. Just identifying general best practices or picking options that seem to offer a high ROI based on an isolated forecast is not an efficient approach, rather the course of action should be aligned with each of these factors. Although it may sound like pretty common sense on paper but in practice, even large companies with experienced management can still commit these mistakes as the faculty of reasoning can get buried under organizational and environmental pressures. While small businesses are more at risk in certain areas, they have their strengths in others. It is imperative that these small organizations leverage their strengths to avoid any threats and to avail any opportunities that help them realize their long-term, strategic vision.