Everyone understands “risk analysis”. It means identifying the causes of that risk and if that risk occurs, the effects that occur as a loss event and is followed by quantifying and prioritizing that risk. People generally have the tendency to associate the word “risk” with negative connotations such as loss of profits, damage to assets, leaking information, threats to systems, logistics disruption, financial losses, loss of customers, production outage, labour disputes and so on.
Many experts say that while such “risks” are one side of a coin, there is the other side called “opportunities”. However, the practitioners of risk management have laid greater importance to negative risks and how to bring in risk management programs.
The positive risk-taking analysis has been left as an ad hoc, unstructured exercise, left to the top management team to decide on a need basis. Start-up businesses presumably must have done an opportunity analysis before they set foot, but this analysis has not gained significant traction as a continuous to-do exercise by existing organizations.
“Opportunities” refer to favourable factors that can be exploited by a business to its advantage – say an emerging market with low tariffs or a product innovation that beats competition, etc.
Usually a SWOT analysis (Strength, Weaknesses, Opportunities, Threats) identifies possible opportunities.
The challenge in evaluating opportunities is that any brainstorming discussion that follows a SWOT analysis sometimes ends up in a “wish-list” of bright ideas or other unrealistic initiatives.
Why does this happen? While a “negative risk” analysis is done by evaluating “cause-and-effect” relationships, an evaluation the “opportunity risk” based on relevant factors like strengths, weaknesses and threats are mostly forgotten or ignored.
It is recommended to break opportunity analysis into structured steps (just like you do for a risk analysis) and this should be based on a proper SWOT analysis.
- Opportunity identification – successful businesses and their top management usually think out-of-the-box and do not limit their imagination to come up with new and improved ways of doing business or expanding the same. While everyone can understand opportunities, they must be able to see the “big” picture and envision the strategy that would be most appropriate for the organization. The recognition exercise must be done constantly so that the business can grow, evolve and compete with the changing trends in the markets.
- Opportunity assessment plan – the next step is to evaluate the opportunities identified and inquire whether the current business model is sufficient to exploit the opportunity in the market in an economically successful way. This leads to the key decision whether to continue on course or make a deviation to take advantage of the opportunity. Analysis involves the following:
- Key questions on the company’s current product, the market, the competitive products and identify if there are unique selling propositions (USP) or the value add offered to customers.
- What is the market size, trend, growth rate and characteristics? If the market is outside the country, then additional factors like geo-political risks, taxation and compliance regime, language and cultural differences should be examined. Do Government sanctions take an enormous time that cuts into your timeline for launch of new products? Are there economic trends that are worrisome? Are banks willing to sanction new loans or bridge the finance gaps? Do you have stability in suppliers and other logistics partners?
- Realistically assess the management skills and experience for the market expansion or opportunity exploitation. This may throw up some current internal weaknesses and the need to strengthen the management for the future.
- Develop a project plan to fix the timelines required for successful launch program and put in place a system for assignment of responsibilities, monitoring the various milestones and task completions and periodic reporting.
KEY POINTS TO KEEP IN MIND
- Do not lose objectivity – your strengths should not be taken for granted and your weaknesses cannot be overlooked. Just like looking at yourself into the mirror, it has to be brutal – start by looking at the top management strengths, employee capabilities, machine capabilities, supplier and contractor relationships, besides several other external and internal factors. If you feel that internal brainstorming or evaluation is going to be subjective, you can think of employing an external expert to help you do this exercise.
- Strengths should be real strengths and not short-term ones. Simply put, it is something that your organization does very well or that which distinguishes you in the market place compared to other competitors. Any aspect that is distinctively advantageous to your organization or what is called your “USP” is your real strength. You should also make an assessment of what your competitors think are your strengths. Any aspect is only a strength if it brings clear advantage to your organization – examples – a very astute management team, innovations or patents that can be brought into to the market as an early-bird, taking advantage of lower tariffs in locations that are not yet explored
- Weaknesses should be identified through an honest assessment – whether they are internal weaknesses that affect your business strategy that can affect your future plans. Internal weaknesses could range across many factors such as lack of expert knowledge within the company, poor skills of existing employees, insufficient data analysis to assess customer preferences and markets, lack of proper IT infrastructure and applications, poor management personnel, shortage of both working capital and long-term funds, existing poor location of business, etc. Do you have enough capacity to be utilized for new production lines?
- Threats have to be considered carefully – mostly they may be in the external environment (but not to ignore internal threats too). Don’t limit yourself with obvious threats like competition getting ahead of you or customers being poached – think a little more ahead, say economic indicators, banking system readiness for extra funding, political changes in the near future that could put a spoke in the wheels, etc. Threats can be anything that could affect your growth negatively from outside – like a supply chain problem, shift in customer preferences, cyber security threats that create disruptions on your servers or websites, shortage of skilled labour or personnel, etc. Evolving technology is both a threat and an opportunity– if handled carefully you can take advantage by being an early adopter to reap benefits.
To sum it up, opportunity analysis is to be taken as seriously as you do a risk analysis and cannot be oversimplified to relegate it to only brainstorming sessions and a quick decision thereafter.