Crafting Success: Strategic Management in Small and Medium-sized Enterprises
Introduction
The concept of strategy is one which pervades all aspects of business. It plays an integral role across the business particularly in marketing where it provides employees with a long-term plan and assists them in connecting with their target audience. Strategic management, crucial for promoting organisational efficiency and equilibrium, has long been a focal point in business studies. The field of strategy has improved and evolved over the last number of years as organisations have learned to analyse their business model to develop competitive advantage (Casadesus-Masanell and Ricart, 2009). Strategy, a guiding force in the business world, is constantly evolving, shaping the future of organisations in an ever-changing landscape. Apple has often been characterised as a cutting-edge business for their ability to foster customer retention and build a brand by creating user friendly devices and offering high quality service to customers (Heracleous 2013). By creating a defined brand which aligns with their core values and building a strategy around this Apple generated a demand for their product in what can be seen as an oversaturated market. In the realm of Small and Medium-sized Enterprises (SMEs), having a strategic blueprint becomes a critical compass for success. The development of strategy is vital, as it provides a system through which companies can operate in a way that is reflective of their vision, mission values and goals.
SMEs rely on strategy to survive and grow the business whilst larger corporations draw on their strategies to maintain market dominance and enhance operations. SME’s account for 99% of active enterprises and 70% of employment in Ireland. The external environment for SMEs is rapidly evolving due to globalisation and technological changes. This advancement is intensifying competition among SMEs. Given these changes, a critical question emerges: what is the significance of strategy for SMEs in this competitive landscape?
SME’s have long been seen as a major driver of economic development and still serve as a catalyst for the emergence of new sectors while preserving those that already exist (Thrassou et al., 2020). The effect of this contribution to national economies is evident in the government’s emphasis on the growth and development of SMEs through provision of support intended to enhance their performance (Khalique et al., 2011). The Irish Government provides supports to SMEs such as mentorship programmes, access to finance and support in navigating the market. The European Parliament has previously launched efforts to help small businesses grow and expand. In 2023, they introduced a relief package for SMEs, considering the effects of inflation on their operations. During the Covid-19 pandemic, the European Union reacted to the impact of the pandemic on SMEs by adopting a resolution strategy. SMEs are a key force behind economic innovations, entrepreneurship, competitiveness, and future growth (Gherghina, Botezatu et al.,2020). Long-term planning and robust external communication are key to unlocking SMEs’ development potential (Darcy et al., 2014). External communication allows SMEs to build connections and gather customer feedback which assists them understanding and refining their product and strategy to meet customer needs.
Defining Strategy
Strategy has been defined as a set of principles which when communicated and adopted within organisations produces a desired pattern of decision making. Effective strategies not only acknowledge organizational challenges but also devise innovative approaches and alternatives for overcoming them. While both operational effectiveness and strategy contribute to superior business performance, they work in distinct ways. A company can outperform its competitors, but only through establishing a difference which it can preserve and sustain. This can be done by solving a niche issue or providing a service which is relevant to a specific target customer. Strategy is paramount in facilitating effective practices of the same tasks as other organizations. While competing companies imitate each other’s improvements in cycle times, strategies converge, and the competition becomes a series of races in identical paths in which nobody can win. The potential drawbacks of such convergence are that they might lead to a lack of innovation or market saturation.
Strategy & Competitive Advantage
In terms of establishing competitive advantage, strategy is about being different. It means deliberately choosing a different set of activities to provide consumers with a blend of value (Porter 1996). Tesla is a key example of this as they place a significant emphasis on their commitment to sustainability whilst using the most cutting edge and up to date technology. Without proactive strategy implementation, a company’s vision remains merely a motto or slogan, ineffective against competition (Porter 1996). Porter’s evidence underlines the pitfalls of imitation, emphasising the need for unique strategies. The crux of gaining a competitive advantage for SMEs lies in their ability to differentiate in specific, targeted ways that appeal directly to a niche audience.
Strategic Management Tools:
Among the various tools available, SWOT, Blue Ocean, and Porter’s Five Forces are particularly impactful for SMEs:
SWOT Analysis
SWOT stands for strengths, weaknesses, opportunities, and threats. The versatility of a SWOT analysis facilitates highly effective, seamless application across all organisational levels and provides an insightful perspective at varying depths. By analysing the contextual layers of their place in the market, businesses market awareness is increased, and potential blind spots are uncovered. The most significant advantage of a SWOT analysis for small and medium-sized businesses is that it enables them to recognize their strengths and weaknesses. An SME can use this knowledge to focus its future goals and objectives on its strengths, mitigate weaknesses and improve inefficient practices (Houben, et al., 1999). Combined this makes for the most effective business strategy. SWOT analysis aids in evaluating various settings, to support on prospective decisions for SMEs, and ensures alignment with their organisational goals (Kajanus et al., 2012).
Blue Ocean
Blue Ocean Strategy, distinct in its approach, encourages companies to shift focus from competing to creating new market spaces, addressing organisational flaws while innovating. Focusing excessively on competitors can inadvertently make them the central element of a business strategy, overshadowing the crucial focus on customer needs (Kim and Mauborgne, 2014). Cirque Du Soleil created its own space in the market using the Blue Ocean Strategy. Its success has been defined by its ability to remain a lucrative business irrespective of the newer forms of entertainment on the market. The aim of Blue Ocean Strategy is not just to differentiate from competitors, but to create entirely new market spaces. It is possible for a company to outperform its competitors through establishing a sustainable difference which can be preserved.
Porters Five Forces
Porter’s Five Forces model is based on the premise that an organisation’s strategies must proactively address both opportunities and challenges in its external environment (Bruijl, 2018). Consequently, for SMEs, developing a competitive strategy hinges on a deep understanding of industry dynamics and the ability to adapt to changes (Bruijl, 2018). These forces encompass: rivalry among existing competitors, which dictates market competitiveness; threats of new entrants, affecting market saturation; substitute products or services, influencing customer loyalty; and the bargaining power of both suppliers and buyers, which can sway cost structures and profitability (Barutçu and Tunca, 2012).
Conclusion
Embracing the principles of effective management enables SMEs not only to navigate challenges but also to carve out a distinctive and lasting impact in their industries. A thorough business strategy is crucial, serving as the driving force behind SMEs’ success and offering the foundational pillars for sustained growth and resilience over time.
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