As mentioned in the last article, this instalment will discuss some of the basic strategic management tools and techniques that can help SMEs understand the business and improve performance.
There are models which have been invented for companies to apply to certain areas of strategic management. Strategic management areas are strategic position, strategic choice, strategic planning, strategic evaluation and implementations. A few models will be discussed for strategic management positioning.
For an SME to have a functioning strategic intelligence system, they should use this to obtain information for their business. First of all, having a mission, vision and objectives in place portrays a clear picture of a strategic direction of an SME. A vision statement centres all future strategy implementations, hence it needs to be clear and futuristic.
Strategic positioning involves having an SME understand its environment to formulate its future business ideas and strategies. This business environment entails the macro-environment, Industry, Resources, Stakeholders and Culture. What do we mean by the Macro-environment and Industry for an SME? Here is an example: If an SME is trading in the capital city of Botswana, Gaborone, as a bed and breakfast, its industry is referred to as Hospitality.
The company’s industry involves suppliers, customers, competitors and other stakeholders. The macro-environment is then the broader environment which involves many factors involved with how, when and where the SME is positioned. These are technological, social, political, legal and economic factors.
We then have the micro-environment which is the internal capabilities of the organisation. It involves its resources like finances, personnel, research and development and production processes. Having an understanding of the above or information of most of them is the intellectual capital which will help the organisation make sound decisions.
Below we discuss how best an SME can obtain information of its environment using basic strategic management tools and techniques.
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. This framework is used to determine the business environment internally and externally. Since internally means the business capabilities, this model then will provide more information when using the Strengths and Weaknesses assessment.
However, external factors may influence a change in internal factors, hence doing the whole assessment is beneficial. If done periodically, it can assist the SME to know their stand and which strategies to put in place for either marketing or operational purposes.
Since these external factors are changing rapidly, they present themselves as Opportunities and Threats surrounding the organisation, For example, farmers in Botswana always have these government programmes running to assist their businesses. This is regarded as an opportunity.
How does it then affect the internal environment of the farmer’s business? Questions that arise are does the farmer have land and manpower so that they can take on this opportunity? Identifying your business Strengths and Weaknesses every now and then will help to forecast plans and accommodate current opportunities and threats.
PORTER’S FIVE MODELS
This model was invented by a man called Michael Porter. It is mainly used to assess the industry of the organisation. Assessing the industry of the organisation will help determine if an SME is competitive or not. It aids in determining the intensity of competition in an industry, as well as the profitability and attractiveness of the industry from an outside perspective (Sutherland, 2014)
The above picture shows all 5 pointers that Porter picked when inventing this model. An SME needs to have information on these and have it updated regularly.
Threats of New Entrants
It can never be an opportunity to have more business of your business nature setting up. Establish how it is easiy for them to set up. For SMEs it is relatively easy to start but this goes to how then do you make it difficult for others to come in and match your standard even when they can easily open? Questions like these make you raise many points as a business owner.
Bargaining Power of Buyers
How much is the switching costs of your customers? Is it easier for them to leave you and go to your competitor? What makes you unique that can help you retain customers?
Bargaining power of Suppliers
When you are in an industry, most of the time you use the same suppliers. For example, small retailers use the same wholesalers for stock. What if they decide not to supply you any more? Are they always available for immediate purchases?
Threats of Substitutes
Are there other products that customers can choose to replace your products? For example, if you are running a gym, there are products that are said to help people lose weight without exercising. How much threat do they pose to your business?
Most SMEs in Botswana flock to open the same type of business. This shows less consideration for competition. Which market will you get if you open a business?
Pestle is a model used to analyse the macro-environment that the organisation operates in. The macro-environment offers both threats and opportunities, no matter the industry the business is in. It is an acronym formed about the six macro-economic variables, which are Political, Ecological, Socio-Cultural, Technological, Legal and Economical.
PESTLE is normally applied when a new business is launched, developing new products, reassessing the organisation and for the decision-making process of the marketing strategy.
These involve consideration of peace and stability of the country and city where the business is located. Don’t you think it is not important to consider the trade and tax laws of the country you want to operate in? Are they favourable to the nature of business you want to do?
These mean an SME needs to consider things like interest rates, employment rates, inflation and exchange rates.
Are they favourable to your nosiness? Lifestyle trends of the people in your market, beliefs and culture.
These mean availability of technological infrastructure where set up your business. Do you believe it will change in the near future?
These involve issues of labour laws, industry regulations and licenses.
This is about taking climate change and the carbon footprint of the place into consideration.
The models above can help SMEs manage information relating to their business and even inquire more before making any other decisions. They will feed their SI system with such information and sharpen their eyes on so many areas of their business, hence developing growing and competitive SMEs in Botswana.
*GAONE MODISAAKGOMO graduated from the University of Derby with a merit in Msc Strategic Management and a distinction in her Thesis titled Assessment of the Effect of Strategic Management Practices (Tools and Techniques) on SMEs Perfomance in the Hospitality Industry in Gaborone. Currently studying ACCA professional level, she also has a BA (Hons) in Accounting and Finance with University of Derby and AAT. She has 7 years experience in accounting and auditing. She was a class president for the MSc SM 21/22 Cohort.