Enterprises need to build systems and processes that will enable them to use strategic planning tools to guide their business towards a brighter future, says Abhijit Bhattacharya, Professor, Institute of Management

Often it is asserted that the field of strategic management lacks coherence and it is highly fragmented. However, there is research evidence to show how companies have achieved excellent performance and sustainable competitive advantage by implementing strategic plans.

Strategy is critical to the growth of an SME

Strategy primarily deals with issues of longterm implications. In recent years, business organisations have gained the power to predict the future with reasonable accuracy using various performance management systems and harnessing the tremendous increase in computing power and communication technology. With this power, they can exploit the potential of the emerging scenarios.

Unfortunately, most Indian SMEs are either unaware of the power of these strategic frameworks or do not show any inclination to use

them for strategic planning. As the tumultuous political and economic events of the present decade have made long-term planning a much more risky business, there is a real possibility of more small and medium firms staying away from strategic planning, notwithstanding the fact that except a relatively small number of firms in the knowledge sector, a majority of the Indian SMEs are still operating in environments where probability distributions of outcomes are knowable. These firms can very effectively apply the standard tools for strategy implementation. Moreover, a disciplined approach to strategy formulation can also create an organisational mindset capable of handling totally uncertain situations better and produce superior results that calls for the highest level of integration of entrepreneurial and strategic thinking.

Current scenario

Henry Mintzberg’s observation of strategic planning as an oxymoron is probably quite apt to describe the approach of Indian SMEs towards business strategy. Few Indian SMEs, have formal strategic planning processes that generally do not go beyond formulation of mission-vision statements. In most cases the process neither provides a sufficient range of strategic options to consider nor presents an engaging road map of a compelling future.

A basic requirement for sound strategic planning is to formulate an action plan to achieve long-term objectives of an organisation, which are derived from its mission and vision. The firms need to clearly identify their value drivers and develop appropriate metrics. SMEs must demonstrate the necessary commitment, capability and discipline to generate, preserve and analyse data essential for continuous monitoring of their strategy implementation process. This process also has to be blended with a creative component.

For firms that only focus on the data management part, strategy becomes a purely number-driven process and this is unfortunately true even for most of the large Indian companies. They try to explain the future merely on the basis of past data and hence the management’s continuous appeal for out-of-box thinking does not generally motivate the employees to break the mindset barrier. On the other end of the spectrum, many small entrepreneurial firms do not make any investment at all to systematically collect and analyse data, without which it is impossible to implement a solid analysis-based strategic planning process. These entrepreneurial firms formulate strategies banking on their creative thinking and pure gut feel.

Strategic planning tools

As a result of wide circulation of business plan formats by various training and academic institutions, consultants, lending institutions and popular publications, SMEs in India are aware of standard strategic planning tools like market research, strengths-weaknesses-opportunities-threats (SWOT) analysis, five competitive forces (though many of them may not know it as Porter’s framework), cost benchmarking, etc.

Role of consultants

SMEs at a lower end, operating in a relatively stable market and with small capital base, often do not have the required management information system. Many firms are also not familiar with the applicability of standard statistical

tools for decision-making. This has created a big demand for consultants to assist these SMEs in strategy formulation and implementation for achieving better performance. Unfortunately, the knowledge level of many consultants is also severely limited by lack of academic research in India to indicate the impact of various factors such as caste, culture, gender, industry, personal attributes, etc on performance of SMEs.

Obstacles to strategy

With the continuous drop of software and hardware prices, many Indian SMEs are technologically well equipped to strategise. But the inability to change mindset in quick succession to adapt to qualitatively new situations appears to be the major obstacle for strategising. For many years, while operating under a licenseand-permit-Raj system, Indian businesses had developed a mindset suitable for a seller’s market that did not require assessing customers’need and uncertainty. Liberalisation during the 1990s demanded a new mindset appropriate for a customer-led system. It also demanded innovation, though mostly incremental, for sustainable performance. Uncertainty has reached

a qualitatively new level today, accompanied by a mind-boggling pace of technological progress. The SMEs, particularly in the knowledge sector, now require a very different kind of mindset for effective strategic planning to meet the challenges and exploit the tremendous opportunities created by such uncertainties.

Resource mobilisation is key

SMEs must have a realistic assessment of their assets that are critically important for implementing their strategies. Particularly in a networked economy, they must learn how to mobilise and leverage network ties, both strong and weak, depending upon the nature of their innovations.

A strategy guide map

The firms that are operating in less knowledge-intensive sectors can still make reasonably accurate projections and implement their chosen strategy to achieve superior performance.Techniques like scenario planning and dynamic modeling can be also very effectively used to implement strategies depending upon the level of uncertainties a firm is facing. Firms that are operating under a very high level of uncertainty must learn to formulate and implement strategies to promote radical innovation that calls for a different kind of organisational mindset.

Management by metrics can still provide the right roadmap for strategy implementation for most Indian SMEs. The firms need to acquire the skills to develop the key performance indicators, their measurements and setting realistic but stretchable targets. Quality, cost, schedule, safety, management, delivery, timeliness and security are some of the key areas that are directly tied to a firm’s mission. In order to make strategy implementation all pervasive, the departments, business units and individuals of the firms have to develop their own indicators to provide linkages with the strategic indicators of the firm.

This entry was posted on Friday, July 31st, 2009 at 4:20 am and is filed under Building Credit. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response or ask a question.