Whether we realise it or not all business owners and managers engage in strategic thought processes on a daily basis. Whether or not to hire or fire employees, accept a new customer or change a long term supplier are all examples of strategy in action. A successful business is one that makes such decisions in a planned and controlled manner.

This type of decision making is often referred to by economists and financial analysts as micro management. In a large public limited company (PLC) this type of day to day decision is often taken by managers some way below board level often in the context of managing individual trading operations at local level. If significant changes are taking place within the strategic policy objectives determined by the board then lower tiers of management are mainly involved in the implementation of board policy. Such strategic policy making at board level is often viewed as management at the macro level.

Of course in PLC land board directors are simply temporary stewards of the organisations well being. Although they may own some shares, often gained through a variety of executive share option schemes, these are usually only a very minor part of the overall share capital of the entity.

However, small and medium sized entities (SMEs) do not have the luxury of abandoning decision making to ranks of middle or more junior management. Decisions that prove to have been made in error are very costly especially when the directors own the majority of the shares.

The problem is that many SME owners often fail to recognise that they more than anyone need to engage in appropriate strategic planning as a recognised function within their overall responsibilities.  

To use the above example, a decision to hire or fire employees should not automatically be the result of say, increased workload (hire) or contraction (fire). Rather, it ought to commence with strategic thought processes such as to what size of operational entity is desired and in which trading areas. Using this approach allows the owner manager to focus on key issues for example; are gross profit margins in one area of activity more generous than in another, what are his or her lifestyle requirements and how will changes in business activity impinge on family commitments. Also, what is the likely financial impact if the decision taken eventually proves to be incorrect i.e. is it worth the risk?

The decision to accept a significant contract with a new customer should only be taken as part of the SME owner’s strategic viewpoint. Will the new contract divert resources from other areas in the business, particularly management time? Does the fact that this new potential customer would represent 20% of turnover within two years sit comfortably alongside the policy of not being overly dependent on only a handful of customers? If say, four existing contracts between them already account for 40% of turnover is it really sensible to take on another large contract especially at thin gross profit margins. Has the business the human capacity to handle the increased workload or in reality will the directors themselves be forced into working ever longer hours?

Changing a long term supplier might achieve an immediate cost saving. However if the nature of supplies being procured is a vital component of the finished goods or services provided to customers then are the supplies received of sufficient quality to ensure no disruption in production schedules that would lengthen lead times for delivery to customers? If the types of supplies involved are not readily available in the market place will it be possible to find an alternative at short notice if the new supplier suffers a disruption to its own service capability? It is unlikely that the former supplier will be willing to recommence supplies at such short notice unless an above average charging structure was accepted.  

In summary therefore, SME owners need to spend time determining the core aims and objectives of the business. Crucially, strategic decisions should only be implemented with due regard for the personal objectives of the owners. Ultimately in an SME business owners need to ascertain what level of profitability they will accept in exchange for the risks involved and their physical labours on a day to day basis.

This will act as a catalyst for the development of coherent and achievable strategic plans that will allow the owners to manage the business in an efficient and effective manner.