Strategic Planning in the Small Business

Unit 3

HO 3-3 (continued)

common

examples. Often,

small businesses,

working intensively

with a particuJar product,

on

a daily, hands-on

basis, may generate

meaningful product

innovations.

A

reason for the attractiveness

of a product

innovatioa strategic

posture is the

hope for high

returns.

Introducing new products

can iesult in

large returns until competitors

recognize

and

respond to the new

changes. However,

significant risks are

also present. For

example, being

on the cutting edge

demands a careful

and accurate reading

of environmental

trends and

necessitates a

timely and cost-effective

response.

The

DiversificationPosture

A diversification

posture occurs

when the business

decides to grow by expanding

operations

into

related,

but essentially

different products

or services. Thus,

the business is no

longer limited

to

a single product/market

posture. Although

a core area of

concentration may

still command

the

bulk of the business

energies, the total

business is broadened

to include

supporting or

complementary products

or services.

The determination

of where

to expand is a function

of two factors-competitive

opportunity

and

strategic

fit. Competitive

opportunity refers

to the firm's determination

that realistic

gains may

be

achieved by moving

toward unexploited

or untapped areas

of consumer demand.

The

business will only

consider growth toward

areas where real

and meaningful prospects

for success

are present.

The concept

of strategic fit

means that the firm

will only grow into

areas that are consistent

with

or

complement existing

operations. Although

diversifying, the

small firm must

be assured that

some logical relationship

exists between

primary, existing

operations and the

desired areas of

diversification. Often,

this determination

is based on the

owner's or manager's

capacity to

understand and control

the new diversified

business. Extremely

high risks occur

when expansion

extends

beyond the entrepreneur's

realm of experience

or demonstrated

competence.

For this

reason, unrelated

diversification is,

typically, not a reasonable

option for the

small firm.

Again, Crystal

Rug Cleaners is a

meaningful example,

showing continued

growth through

complementary diversification.

Crystal

grew and prospered

by selecting meaningful

niches and

appropriate strategic

postures. Soon,

they realized

and

that

their levels of professionalism

quality prompted many

consumers to trust

Crystal for total

carpeting needs. Thus

repairs of

rugs and carpets

emerged as a new service.

Initially, the

repair service was targeted

toward the

upper income

market, and provided

delicate repairs

for expensive oriental

carpets. These

were

done,

on a part-time, as-needed

basis, by a

retired master repair

person. Soon, repairs

were

expanded

to inclde other

carpet groups

and a range of repair

needs. Within

a year, a repair

division, with

a full-time expert,

was added to

the operation. Thus,

a logical area

of

complementary

growth was realized.

THE

CHOICE OF STRATEGIC

POSTURE

Given these

six general strategic

postures available

to small firms, managers

must decide which

postures
are most appropriate
for their situation.
It is not unusual
for a firm to simultaneously

embrace more
than one posture
if, for example,
the industry is changing
rapidly. The

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