For instance, a company may have to adapt its operations to achieve preferred supplier status when a customer reduces the number of supply chain participants. Then, as a surviving preferred supplier, the SME may have to assume increased strategic responsibility, accepting larger roles in product design, service, and coordination of the output from its own suppliers to provide seamless, total solutions to the OEM.

As the business world evolves at an increasing rate, no lead in capabilities lasts forever. Companies with extensive investments in today's technologies may be reluctant to replace them with new technologies. This hesitancy can provide a window of opportunity for others. Thus, incumbents must avoid becoming complacent, and outsiders must be alert for opportunities. At the same time, the tendency toward long-term relationships and joint investments makes it increasingly difficult for newcomers to unseat incumbents in an integrated chain. Some incumbent suppliers are assured of the business as long as they remain competitive. Because of the rapid rate of change in many industries, opportunities arise and disappear frequently, and taking advantage of these opportunities can be expensive. Therefore, opportunities must be carefully selected so as not to exhaust an SME's limited resources. Mapping of requirements and capabilities (see Chapter 12) can be useful for assessing and prioritizing opportunities.

Many SMEs do little formal business planning. A 1999 survey of 500 businesses with fewer than 500 employees revealed that only 13 percent have an annual budget in writing, 14 percent have an annual business plan in writing, and 12 percent have a long-range plan in writing. Many respondents indicated that in the "real world" life is simple: their annual plan is in their head and their annual budget consists essentially of "sell as much as possible, make payroll, and keep the lights on" (Wall Street Journal, September 7, 1999).

Developing a strategy or business plan need not be an elaborate process, but it should involve more than just an annual budget. At a minimum, the plan should define a vision for the company and identify specific steps and timetables for achieving the vision. It should also address each of the key topics identified in this report and present financial projections for the next several years. It should zero in on core competencies and outline plans for additional value-added services.

For small enterprises, the plan can focus on a small number of activities. An SME may be able to make a substantial profit by focusing on one critical product or process or by providing convenient, low-cost production capacity to meet surges in OEM demand. Therefore, despite the need to be aware of changes in technology and customer requirements, the optimum strategy for a small SME may be to excel in one carefully defined capability and retain merely adequate capabilities in other



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