Too often small business managers focus solely on the day to day activities that go into to running a business.
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While these micro issues are crucial to the success of the small business, it is also imperative that the small business manager take a broader look at their industry and their strategic position. By taking time to analyze your business from a macro prospective, the small business can be better prepared for long-term success.
Many small business owners, swept up in the daily grind, feel taking time to analyze their strategic position can be put on hold. Analyzing your strategic position does not have to take countless hours and the benefits can be tremendous. There are a few techniques that will be discussed in this article that should help the small business manager analyze their strategic position without investing large sums of time or money.
First off, the small business owner needs to properly identify their industry. This can be tricky if your company is offering a new product or service. Once you know which industry you operate in, there are plenty of industry reports and documents available that contain a good deal of information.
Beyond industry reports, you should understand who your competitors are. If you offer a new product or service, you may want to look at companies that could develop a similar product or service. Visit your competitors' website and try to get a sense for their management strategy and style. You'd be surprised how much you can learn from a company from their website and/or visiting their store.
Once you have painted a picture of your industry and your competitors, you will have a better understanding of the external environment. Now it's time to analyze your company internally. Fortunately, there have been some brilliant management strategy minds that have come up with some techniques that can help in this process.
Albert Humphrey, a former Stanford University researched created a concept known as a SWOT analysis to analyze a company's position. SWOT stands for strengths, weaknesses, opportunities and threats. I have found the most helpful way to utilize this technique is to have a meeting with several management level employees and brainstorm ideas for each of the four sections.
When conducting this analysis, it's important to be brutally honest. Many companies have no problem discussing strengths and opportunities but are hesitant to discuss all the threats and weaknesses. In many cases you can learn more about your strategic position by taking a good look at the opportunities and threats.
In addition to the SWOT analysis, Porter's 5 forces model can also be extremely helpful for analyzing your company's strategic position. Michael Porter, famed business strategist and professor at the Harvard Business School created the 5 forces model. With this model, 5 different "forces" are analyzed. A good way to analyze these forces is to get the management team together to discuss each of the five factors.
The first force is the bargaining power of suppliers. This has to do with the relative power you or your suppliers have. For example, if you source a raw material and there is only one supplier in the world, that supplier has a good deal of bargaining power. The second force is the bargaining power of customers. This has to do with the relative degree of buying power your customers have. For example, if you produce a commodity that is available everywhere, your customers have a high degree of bargaining power.
The third force is the threat of new entrants. This is related to barriers to entry and how easily a new competitor could swoop in and steal market share. The fourth force is the threat of substitute products. You should always be aware of substitute products, which are products that a customer could use in lieu of your own product.
Finally, you should analyze the competitive rivalry within your industry. This is extremely important. If there is a high degree of rivalry, business may take drastic measures like large price cuts just to get a leg up on the competition. By understanding Porter's five forces you can better plan and comprehend your strategic position.