Why you’re never too small to think strategically

In a typical year, I have several opportunities to discuss business issues with senior managers of many SMEs during executive training sessions or other events.

A common lament I have heard from these executives is that they are overburdened with everyday work.  Many also express frustration that they don’t have enough time to devote to strategic issues. A few believe that strategy is more important for large companies and it is sufficient for SMEs to be tactical and opportunistic without being strategic.

I believe sufficient attention to strategic issues is important for any organisation, large or small.

Paying attention to strategic issues doesn’t require having a large department or specialised managers. Nor does it mean having a formal planning process. What it does mean is thinking holistically, because the competition and broader environment are always evolving.

Durable assets

Recently, I had an opportunity to discuss strategy with the top management of Singapore-based Golden Bridge Foods Manufacturing Pte Ltd (a leading manufacturer and supplier of processed meat products). I was struck by the remarkable clarity of its strategy and the key elements illustrate some important strategic principles.

The first and most notable aspect of Golden Bridge’s strategy was the resources it devotes to building distribution. It has a very strong presence in a leading supermarket chain, based not only on factors such as price, quality and delivery reliability but also on longstanding relationships.

Nitin Pangarkar’s book is available from Amazon by following this linkIn my recent book (High Performance Companies: Successful Strategies from the World’s Top Achievers, John Wiley, 2011), I discuss the importance of investing in durable assets which build competitive advantage and discourage imitation by competitors. Investments in distribution are the classic durable assets which take time to build and cannot be replicated by competitors without going through the same time and resource consuming process.

In fact, Golden Bridge has gone beyond local distribution by seeking regulatory approvals from foreign countries to import processed food. These approvals are difficult to get, especially in countries that are picky about the quality of food products sold in their countries.  By investing time and resources in getting these approvals (which can take up to two years to obtain), Golden Bridge creates a barrier for would-be imitators

Over time, many companies are tempted to deviate from their strategic path by new developments. The option of sourcing cheaply from China is one such option, which can quickly boost profits.  Being in the business of food products, Golden Bridge has been careful to source from locations that are best known for a particular type of meat (e.g., Canada and Germany). While procuring from these high-cost countries can add to short term costs, it can protect Golden Bridge’s reputation and long term profits.

This sourcing policy illustrates what I call avoiding making incremental changes to strategy that can often prove detrimental. In fact, such incremental changes have undermined the competitive advantage and performance of even well-known companies such as McDonald’s and Starbucks.

Strategic clarity

The avoidance of incremental strategic changes which can prove detrimental is also evident in Golden Bridge’s conscious choice to avoid certain products. One example being its decision not to offer the popular Chinese delicacy Bak Kwa (a kind of dried pork for those unfamiliar).

chess280Strategy can be important to any company, regardless of its sizeThe senior management’s thinking is that Bak Kwa is a seasonal product, popular mainly at Chinese New Year. It is also a product that doesn’t lend itself well to automated manufacturing, and the high degree of manual work implies that Golden Bridge would not enjoy a significant competitive advantage over small rivals. So, while it may be tempting to earn additional revenues by selling Bak Kwa during season, it may not be profitable for Golden Bridge and hence its choice of not including it in the product range.

SMEs can also learn from Golden Bridge’s strategy of continuously enhancing its competitive advantage which requires vision and strategic clarity. It has sought to build on its knowledge and experience about halal products by targeting markets in the Middle East.

It is likely to enjoy greater credibility and also at least a slight knowledge advantage in the Middle Eastern markets over potential rivals from developed countries. To lend greater credibility to its strategy, it has completely cordoned off a section of its factory and even the deliveries of raw meat for the halal section of the factory are handled separately.

The strategy making process at Golden Bridge is participative. The top management gathers inputs from key managers, sometimes through less formal means such as over lunch or dinner meetings. The company also makes conscious efforts to tap into what strategies have worked for its rivals.

My argument here is that strategy can be important to any company, regardless of its size. Being strategic is more about thinking holistically of how a company can achieve competitive advantage than about having a formal planning process or specialist managers, which many SMEs may be either averse to having or may find unaffordable.

By following some simple principles, SMEs can ensure that they build and maintain competitive advantage and continue to produce good performance. SMEs often enjoy the advantage of having a lean top management which makes the job of arriving at and communicating strategy easier. They also might face fewer issues of continuity since many are family managed.

In summary by being proactive and conscious about key strategic issues, SMEs might be able to achieve competitive advantage and high performance.

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