FEATURE
PAPER
Hardball
and Ooda Loops: Strategy for Small Firms
The
following paper was presented at the 2007 Allied Academies
International Conference - Jacksonville. It was written
by Thomas M. Box and Chris Fogliasso of Pittsburg State University,
Kent Byus of Texas A&M University – Corpus Christi,
and Warren D. Miller of Beckmill Research.
Abstract
This
paper reviews (briefly) the field of strategic management
and offers
a prescription for
a new approach to strategy for small firms. The authors believe
this makes a potentially valuable
contribution to the strategy literature because the current
approaches to strategy – Porter’s
Positioning School and Barney’s Resource Based View – are
viewed by many as appropriate for
large firms, but hard for the smaller firm to access.. This
paper integrates the contributions of
George Stalk, Senior Vice President at Boston Consulting Group
and Col. John Boyd (United States
Air Force – Retired). Stalk is the author of several
articles and a book entitled Hardball: Are You
Playing to Play or Playing to Win? Boyd was a strategy consultant
to the Department of Defense
and was credited for developing the United States Marine Corps’s
Maneuver Warfare philosophy.
Introduction
Strategy
as a concept, as an academic field of study, and as a playground
for hordes of
consultants, has a rich history and a body of literature dating
back almost 2500 years. The earliest
known writings on the subject date to the Warring States period
of Chinese history (480–221 B.C).
The author of The Art of War (frequently called The Art of
Strategy), Sun Tzu, may have been one
person or several (Wing, 1988). In any case, this short book
of 5600 words is one of the most widely
translated and read books in the world today. It remains the
subject of continued study and has been
used as a textbook in thousands of classes on strategic management.
It was introduced to the west
in 1772 by a Jesuit priest—Fr. P. Amiot. Tis translation
was reputedly a favorite of Napoleon (Wing,
1988). English, German, and Russian translations appeared in
the early 1900s. In 2007, the book is
used at the United States Army’s Command and General
Staff College and by various Marine Corps
proponents of “maneuver warfare." The Art of War
remains pertinent to strategy more than two
millennia after it was written.
Musashi’s
Book of Five Rings, published originally in the 17 century,
is another relevant
guide to strategy and is also widely studied to this day.
It, too, is used at the Army’s Command and
General Staff College and as a text in many strategic management
classes for business professionals
in Japan, the United States, and Western Europe.
Thus
we see that the subject of strategy—certainly military
strategy—has a long and
distinguished written history. That raises a question: “Does
military strategy have any application
to business?” The view taken here is a resounding “Yes!” However,
we acknowledge that there are
substantive differences between military and business strategy.
In the interest of “full disclosure”,
we acknowledge that two of the authors are former Marines
and one of the authors is a former
Special Forces officer.
Most
published works about business strategy seem to apply to
large organizations. That is
no surprise. By their very nature, large businesses attract
the attention of regulators, government
agencies, the investing public, and authors and editors.
By definition, large businesses are those that
exceed the Small Business Administration’s definitions
of small business: a headcount cap of 500
for manufacturing and mining firms and a revenue cap of $6.5
million for retailers. In this
manuscript we focus on very small businesses (VSBs). We define
a VSB as one employing fewer
that 100 people. Of the 7.2 million business establishments
in the United States in 2002, 7.03 million
(97.6%) employed fewer that 100 people. A full 6.2 million
(86.1%) actually employed fewer than
20 (Statistical Abstract of the United States, 2006). Three
of the four authors of this manuscript have worked for, owned,
and consulted with
VSBs over the last twenty years. We understand their problems,
and we, frankly, are more interested
in them than in large organizations. It is our intent to
offer to VSBs specific recommendations about
designing, implementing, and controlling strategy.
Read
the Entire Paper...
.
TIP
OF THE WEEK
Good
Forecasting Requires Good Judgement
The forecasting process requires an entrepreneur to exercise
good judgment in planning, particularly when the planning is
providing the basis for raising capital. The overall approach
to forecasting is straightforward--entrepreneurs make assumptions
and, based on these assumptions, determine financing requirements.
But entrepreneurs may be temped to overstate their expectations
in order to acquire much needed financing. Here are some practical
suggestions about making financial forecast:
1. Develop realistic
sales projections. Entrepreneurs often think they can accomplish
more than they actually are able
to, especially when it comes to forecasting future sales.
When graphed, their sales projections for a new venture often
resemble
a hockey stick--the sales numbers are flat or rise slightly
at first (like the blade of a hockey stick) and then soar
upward like a hockey stick's handle. Such projections are always
suspect--only
the most astonishing changes in a business or market can
justify such a sudden, rocket--like performance.
2. Build projections from clear assumptions about marketing
and pricing plans. Don't be vague, and don't guess. Spell out
the kinds of marketing you plan to do--for example, state specifically
how many customers you expect to attract.
Paul A. Broni offers
this advice:
When putting together your income statement, revenues should
show more than just the projected sales figure for each year.
You should also show how many units you plan to sell, as well
as the mix of revenue (assuming that you have more than one
product or service). If you have a service business, you may
also want to show how many customers or clients you will have
each year. Investors will look at that number to determine
whether its realist for you to sell to that many customers.
For example, if your plan is to go from 12 customers in the
first year to 36 customers in the second, can the sales team
you've built accomplish that goal? What about marketing and
advertising? Does your budget account for the money you'll
need to spend to support such an effort?
3. Do not use unrealistic profit margins. Projections are
immediately suspect if profit margins (profits / sales) or
expenses are significantly higher or lower than the average
figures reported by firms in the industry with similar revenues
and numbers of employees. In general, a new business should
not expect to exceed the industry average in profit margins.
Frequently, entrepreneurs assume that as their company grows
it will achieve economies of scale, and gross and operating
profit margins will improve. In fact, as the business grows
and increases its fixed costs, its operating profit margins
are likely to suffer in the short run. If you insist in your
projections that the economies can be achieved quickly, you
will need to explain your position.
4. Don't limit your projections to an income statement. Entrepreneurs
frequently resist providing a balance sheet and cash flow statement.
They feel comfortable projecting sales and profit but do not
like having to commit to assumptions about the sources and
uses of capitol needed to grow the business. Investors, however,
want to see those assumptions in print, and they are particularly
interested in the firm's cash flows---and you should be as
well.
5. Provide monthly data for the upcoming year and annual data
for succeeding years. Many entrepreneurs prepare projections
using only monthly data or only annual data for an entire
three-or five-year period. Given the difficulty in forecasting
accurately beyond a year, monthly data for the later years
are not particularly believable. From year two on, annual
projections are adequate.
6. Avoid providing too much financial information. Computer
spreadsheets are extremely valuable in making projections and
showing how different assumptions affect the firm's financials.
But don't be tempted to overuse this tool. Instead, limit your
projections to two scenarios: the most likely scenario (base
case) and the break-even scenario. The base case should show
what you realistically expect the business to do; the break-even
case should show what level of sales is required to break even.
7. Be certain that the numbers reconcile--and not by simply
plugging in a figure. All too often, entrepreneurs plug a figure
into equity to make things work out. While everyone makes mistakes,
that's one you want to avoid because it can result in a loss
of credibility.
8. Follow the plan. After you have prepared the pro forma
financial statements, check them against actual results at
least once a month, and modify your projections as needed.
These suggestions, if followed, will help avoid the old problem
of overpromising and underdelivering. Given the nature
of starting a business, entrepreneurs
at times simply have to have faith that they will be able to deliver
on what they promise, even though it may not be clear exactly
how this will be accomplished.
Risk is part of the equation, and often things will not go as planned.
But integrity requires you to honor your commitments,
and
that cannot be done
if you have made unrealistic projections about what you can accomplish.
Justin
G. Longnecker, Carlos W. Moore, J. William Petty, Leslie
E. Palich.Small Business Management - An Entrepreneurial
Emphasis. 2006. Thomson Southwestern. pg 227-228.
|
ANNOUNCEMENTS
Southern
Journal of
Entrepreneurship
The Southern Journal of Entrepreneurship
will issue their first edition in March 2008. The Journal
is seeking new submissions for their refereed journal focusing
on a blend of theory, practice, and pedagogy. For more information
please click
here.
Request
for Papers & Reviewer Volunteers
The
Small Business Institue is now requesting papers and paper
review volunteers for the Small Business Institute Journal.
If you are interested in submitting a paper or becoming a
volunteer, please let us know. The first issue
is to be printed April 2008. For more information please click
here or email us at sbij@uca.edu.
SBANC is Updating
Their Entrepreneurship and Small Business Network
The Small Business Advancement
National Center is currently updating their Entrepreneurship
and Small Business Network. If you currently teach or know
a professor in your
school or state that teaches an Entrepreneurship or Small
Business course, please provide us with any available information
at sbanc@uca.edu.
We appreciate any help. Thank you.
.
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CONFERENCES
FU
|
| Who: |
Fordham University
|
| What: |
The Fordham University Pricing
Conference
|
| Where: |
Fordham University, New York, New
York, USA |
| When: |
September 28-29, 2007 |
|
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ASBE
|
| Who: |
Association
for Small Business and Entrepreneurship
|
| What: |
2007
Conference
|
| Where: |
Austin,
Texas, USA |
| When: |
October
10-12, 2007 |
|
|
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SWAM
|
| Who: |
Southwest Academy of Management |
| What: |
2008 Annual Meeting and 50th Reunion
Southwest Acadmeny of Management
|
| Where: |
Hyatt Regency - Houston, TX |
| When: |
March 4-8, 2008 |
|
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ALLIED
|
| Who: |
Allied
Academies |
| What: |
Fall International Conference |
| Where: |
Reno, Nevada, USA |
| When: |
October 4-5, 2007 |
|
|
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MMA
|
| Who: |
Marketing
Management Association
|
| What: |
MMA Fall Educators Conference
|
| Where: |
St. Louis, Missouri, USA |
| When: |
September
26-28, 2007 |
|
|
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CALLS FOR PAPERS
MEI
|
| Who: |
Management, Engineering
and Informatics
|
| What: |
The 4th International Symposium
on Management, Engineering and Informatics 2008
|
| Where: |
Orlando, Florida, USA |
| When: |
June 29-July 2, 2008 |
Submission
Deadline:
October 24, 2007
|
|
|
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ACME
|
| Who: |
Association
of Collegiate Marketing Educators (ACME)
|
| What: |
2008 ACME Conference
|
| Where: |
Hyatt Regency Houston, TX |
| When: |
March 4-8, 2008 |
Submission
Deadline:
September 30, 2007
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WUF
|
| Who: |
|
| What: |
The
2008 World Universities Forum
|
| Where: |
Davos,
Switzerland
|
| When: |
Jan 31-Feb 2, 2008 |
Submission
Deadline:
October 13, 2007
|
|
|
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SBI
|
| Who: |
Small
Business Institute
|
| What: |
2008 SBI Conference
|
| Where: |
Handlery
Hotel – San Diego, CA |
| When: |
Feb.
14-16, 2008 |
Submission
Deadline:
October 1, 2007
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