The high value of formulating a strategy lies with the fact that action can be taken today with an eye on the future. In other words, we can implement changes today in order to ensure success in the long term. The goal of any strategy formulation is to position the business in existing or new markets on the basis of its strengths and competencies, thereby justifying its existence in relation to the competition, also in the long term and by creating a value premise for its customers. 

Instead of struggling in the wrong direction, the business strategy ideally provides the right direction and essentially serves the following purpose:

1. To determine the framework for future decisions
2. To provide orientation and clarity for employees (and thereby also the motivation and clarity of tasks for every single employee)
3. To prioritise the allocation of resources (framework for investments, budgets and staff deployment)

To date, a mostly intuitive approach to strategy development in small and medium-sized enterprises

In practice, we often experience that the entrepreneur or the entrepreneurial managing director take an intuitive approach to strategy formulation in German small and medium-sized enterprises (SMEs). These individuals normally have vast experience and knowledge of the markets, of their competitors as well as their own company and often intuitively adapt their business strategy during market changes as part of the latest decisions that need to be taken. In our view, this intuitive approach, which is based on experience, remains an important driver of success for the strategy adaption of SMEs.

At the same time, however, the dynamics as well as the intensity of external changes, especially technological changes in the global market environment, and the role of a company’s strategy as a factor for orientation and motivation of the increasingly connected employees, are growing. Where before smaller intuitive adaptations had to be made on a smaller scale and larger adaptations were only necessary every five to seven years, the need for the overall scale and speed of adaptations has clearly increased.

Based on the increasing speed and complexity of change, German SMEs will have to strengthen their intuitive approach with a structured process of strategy formulation, which will have to include the different perspectives of their managers as well as external factors.

Challenges due to limited resources and methodological experience in SMEs

As part of the long-term support of our clients, we have observed that the need for a continuous strategy development process is often acknowledged in SMEs, but these have to contend with specific challenges in the process of strategy formulation:

• No clearly defined process with implementation dates (daily business gets prioritised)
• No availability of own resources for the implementation of the strategy formulation process (time, experience, methodology)
• Low acceptance in line management occurs frequently (added value is called into question)
• No clear communication of the strategy in the organisation and to employees
• Limited access to market data and information (market research)
• Spreading of risks with SMEs is often more difficult (options for action are limited if compared to big corporations)

Supportive approach to solutions by means of a continuous process which is divided into work steps

At first glance a structured work process seems like a huge task. But it is our opinion that with the correct methodology - if divided into smaller subtasks - and a basic understanding that strategy formulation is a continuous, recurring process, the process of strategy formulation can also be handled by SMEs.

With effective prioritisation, it is usually possible to find a balance between manageable effort and relevant benefit in the structured strategy formulation process:

Consequent implementation of all defined work steps significantly increases the chances for success and the impact of the “correct” company strategy – even if the applied effort is limited. It is essential to not end with strategy formulation and the definition of measures (up to step 5/6), as it unfortunately often happens in practice, but to also drive the implementation, communication, and control/adaptation with the same consistency (starting from step 7/8) in the company. Essential best-practice recommendations (top 10) from our experience as consultants are:

1. Understanding strategy development as a process (annual date for a workshop, incl. preparation with updates of market analysis, which is aligned to financial planning in terms of timing and content)
2. Involving all relevant managers (knowledge, perspective and acceptance)
3. Gathering valuable external information and taking it into account (trends, market data, competitors)
4. Choosing methods of analysis that are adapted to the company and the players
5. Concentrating on the essentials (keeping an overview of the whole)
6. Excluding what will not be done (deselect)
7. Taking into account a dynamic environment when defining strategy (incorporate the expected reaction of the competition and points for revision)
8. Setting manageable and implementable goals (definition of a few measures which can be implemented and controlled during the year)
9. Communicating the strategy appropriately in the company and to the stakeholders (trust, conviction, connection)
10. Using implementation and controlling tools (KPI system, tracking of measures, integration of the goals into financial planning)

We have supported our small and medium-sized clients for many years with strategy formulation as part of annual workshops, whether they are part of the annual financial planning process or not. In particular, we serve as sparring partner for the management team, executives, shareholders and financial partners and are essential drivers and moderators of the entire process.