SME Strategic Planning Process
The strategic planning process has undoubtedly been one of the most strategic developments for achieving firm and industry competitiveness during the last four decades. The same claims can hardly be said for the role of Strategic planning for the SMEs. While the subjects of SME leadership and entrepreneurial leadership have attracted many researchers, the question of how we should approach SME strategic planning seems to have not been given the same attention. SMEs are the economic engine of advanced and developing economies and play a great role in the social infrastructure by the provision and distribution of employment and economic regeneration. In my literature review I draw upon the disciplines of strategic leadership, leadership, action learning, SME management, and entrepreneurial studies.
Business strategy is a combination of interrelated activities and actions organised in a way to increase the business performance by increasing profitability while moving towards a long term goal (Stonehouse & Pemberton, 2002). This can only be done if they can attract larger base of preferred customers for their targeted products. Achieving this aim provides companies with competitive advantage. Strategic leadership aims to ensure this leading edge over competitors on a longer time period, and thus achieve sustainable competitive advantage (O’Regan & Ghobadin, 2002). So our learning model (L=Q+ Programmed knowledge) would be a good example of this approach.
The process of Strategic leadership in companies focuses on managing and leading strategy implementation (Heifetz & Linsky, 1994) and in itself is one of key success factors for this process. Strategy formulation is the task of detailed rationalistic analysis of the options and selection while strategy implementation focuses on action implementation of the selected strategies. The process assumes that stakeholders have the same value system and that maximising profit growth is the ultimate goal. As our environments have changed into a highly competitive location-less enterprises, full of ambiguity and complexity, it has become extremely difficult to create a transparent view of the future. Our assumption that the future is a puzzle has now changed to a future that is a wicked problem.
The process of strategy development has seen many changes. There are many supporters of the prescriptive methods who prefer to defend the scientific and rationalistic view of this activity. Since 1990’s other authors have proposed more flexible methodologies based on emergent approaches.
The learning/emergent school of strategy formation (Quinn, 1980) argues that strategy formation is an iterative process and emerges as those involved learn and experience both the processes and the outcomes.
They argue that the processes of envisioning of the employees and stakeholders develop extra competencies and capabilities which were not present before the strategy formation (Stopford, 2003). So a strategy formation learning actually takes place where the whole organisation goes through a repeating cycle of actions, reflections, theory building, and change in practice. Indeed often this local change provides the triggers and appropriate sense-making processes for the larger organisational change (Reason & Bradbury, 2001; De Geus, 1988).
Given the in-built adaptability of the learning school (Beaty et al, 1997) for strategy formation, it is easy to envisage how this model will satisfy the entrepreneurial characteristics of the owner/managers of the SMEs.
Our experience during the past two decades has shown the development of increasing level of learning abilities at all levels of organisations. The competitiveness has forced companies to expect more accountabilities and responsibilities from their workforce. Shareholders expect innovation and market sensitivity in all the processes and employees of the organisation. In reality, we expect a high level of motivation if we are to realise these expectations. The traditional approaches of prescriptive strategy development not only create wicked problems, but also provide an inflexible framework for workforce participation and motivation. If we are to expect that our competitiveness is achieved through competitive people, then the prescriptive models may diversify our attention. The learning school accepts that there may be trial and errors in this process. However we may look at it in a more positive way and replace the word error and focus on trial and learning. Our champions in the past have always conveyed their successes through ‘storytelling’, highlighting their wins and their learning through their actions (McKenzie, 2011). It is this positive attitude that makes entrepreneurs and champions successful.
In today’s business our ability to lead our organisation through turbulent and complex environment requires leadership capabilities in order to achieve competitive advantage (Kupers & Weibler, 2008). The business uncertainties require us to make continuous changes in order to become a customer focused organisation. The process of this achievement and its coordination is often termed as leadership capabilities. With over fifty years of research and many proposed definitions, we have as yet not been able to clarify what actually is leadership, or indeed if our success has been achieved through a leader or through the dynamics of leadership (Iles & Preece, 2006). There may be many explanations for this. Mainly, all cultures of east, west, north and south in the world have in their ‘storytelling’ developed an accepted image of their national leaders and they often translate these ‘storytellings’ into concrete but without proof characteristics. The Romans, Persians, Greeks, Chinese, Americans etc have all developed philosophical images of their past and present leaders. We often confuse or indeed, do not clarify whether our definitions of leadership should solely focus on business or the larger context. We assume that there is a direct relationship between success and profit. Here lies our main problem. Our corporate leaders wish to focus on profit and our SME leaders wish to focus on success. Even in the corporate sector, different cultures put different emphasis on achieving a balance between profitability and cultural success. In many of the SMEs which we have implemented an integrated set of business development and strategy formation, we have noted that the SME owner/managers often focus on personal strategy and only considered market strategy if it fits within their value systems. Profit therefore is not the main focus. Using action learning approach, we may be able to provide the match between these differing expectations (Leitch et al, 2009).
It is not surprising that most of our leadership research has followed the same path of corporate strategy research, in that it’s main focus has been of large organisation which are often North American based or at best Euro Americans. Leadership researches within other cultures are spars. SMEs in contrast are lead by entrepreneurs who by definition enjoy flexibility and opportunity development. They pride themselves in identifying and mobilising opportunities. How they lead or manage these opportunities requires fundamental research, since many of these lack advanced management education and leadership development skills. Yet they seem to achieve success better than those who have gone through traditional management development and leadership programmes. We can only assume that the ‘school of life and practice’ has provided them with hidden talents and skills beyond our definitions.
There are intrinsic differences in the nature of SMEs that lead us to expect differences in leadership development needs when considering the nature and complexity of their activities (Jensen & Luthans, 2006). The owner/managers prime concern is to lead their businesses into success and the achievement of this success provides them with personal motivation. The process of management and leadership provides them with a sense of identity for future ‘storytelling’. Should we decide to separate the concepts of leading and management within SMEs, we will endanger this valuable concern (Eggers & Smilor, 1996). Entrepreneurs have an in-built ability to solve wicked problems through simplification, innovation and risk management. By definition, these are strong individuals, dominant in nature, focused on opportunity, with a lack of flexibility on approach, values, and openness. They strongly believe that they are in the right path and their survival depends on pursuing that path. The only way they change that path is through sense-making caused by threat or opportunities.
SMEs are important in every economy, but have high failure rates and poor performance (Jocumsen, 2004). To ensure industry competitiveness and economic regeneration, we must understand why growth SMEs are more likely to adapt strategic planning while others develop strategy myopia (Wang et al). Considering the difficulties in understanding interrelated nature of entrepreneurial behaviour, SME leadership/ management, and strategy formation within SMEs, we may consider using action learning to learn while we practice the process of strategy formation. Perhaps we can use the concept of ‘storytelling’ within learning sets of owner/managers to understand what we do not understand. The stories are often enriched with approaches, vision, values, and innovations. They may provide us with an insight into why SMEs do not accept strategic planning with open arms (Robinson & Pearce, 1984; Sexton & van Auken, 1985). While we accept that strategic planning is a strong vehicle for competitive advantage, SMEs still continue their myopia towards strategic planning (Mazzarol, 2004). They considered the process slow, ponderous, and over-complicated, all factors which are the opposite end of entrepreneurship values. Do we promote their current success using new approaches to strategy formation or do we entangle them with complex strategy formulation which they neither understand nor provide them with motivation? We need to see the problem and questions from their point of view. Action learning may provide an effective mechanism for solving this wicked problem.
The research conducted within the fields of leadership and management, strategy planning, SME management, entrepreneurial management, and action learning is considerable. We may be able to use the synergy between these fields and develop a new approach to solving strategy myopia within SMEs. We need to take this issue seriously, since they are the basis of future business innovations. Theirs success will help us to challenge the old corporate culture. The review conducted by Smith & O’Neil 2003 supports this need. The authors highlight a lack of research in action learning focused on action learning-enabled strategy making.