How to identify new opportunities

SWOT analysis diagramIt is one thing to spot a new business opportunity but quite another and much harder to identify whether it is the right one to pursue.

Identifying and exploiting opportunities can depend on the culture within a business and one way to find out is to look at the suggestion box.  Having visited many businesses over the years as a turnaround and rescue advisor I have always made a point of inspecting them and never once have I found a suggestion in them which suggests that everyone has given up on initiatives or more likely no longer believe management will listen.

That is not to say that a business cannot or should not solicit ideas from staff.  But wherever new ideas are generated it is important that a business acknowledges them and has a process for considering and reviewing them.

The business’ SWOT analysis is often a useful reference point because it ought to identify opportunities via its identified strengths and, equally important, weaknesses so it knows what not to do.

The critical aspect of this process of review and assessment, however, is to be realistic about the ability of the business to act on the opportunity. What impact will executing the new opportunity have on the existing business? What are the investment resources that might be needed both financial and in staffing? Does it fit within the current business and how far does it challenge the current business model?

An example

A retailer with a chain of shops identifies an opportunity to sell a new range of goods to existing customers through its stores or perhaps identifies a new segment in the marketplace.

Boots the Chemist entered the DIY market in the late 1980s through its acquisitions of AG Stanley and Payless DIY. AG Stanley’s two high street retail DIY chains FADS and Homestyle were a complete disaster and after many years of losses Boots wrote off £180 million and paid Jon Moulton’s Alchemy millions to take them off its hands. Boots’ other venture Payless DIY was merged it into Do It All owned by WH Smith as a 50:50 joint venture. Within 10 years this became an even bigger disaster with Boots writing off £312 million when it sold Do It All to Focus DIY.

While the growth of home ownership in the 1980s and 90s offered an opportunity to exploit the growing DIY market, was it appropriate for Boots as a chain of chemists to enter the DIY market in terms of both its core market and its management capability?

This illustrates some of the strategic considerations that need to be looked at with each new opportunity.  It includes assessing the competition and whether the new product or service is being offered to existing customers or to a new market segment. Consideration needs realism about capabilities as well as the resources needed and the challenges ahead. It also needs an appreciation of the opportunity cost, that of diverting time and resources away from the existing business

Before a good idea becomes a financial disaster, there are a number of useful tools for assessing opportunities. Here are a few that might be worth using: Porter’s Five Forces was developed by Michael Porter as a framework for industry analysis of the five competitive forces that shape strategy.

Boston Matrix diagramThe Boston Matrix is a growth-market share model developed by Boston Consulting Group to help businesses analyse their portfolio of businesses and brands by categorising them into one of four areas based on market share and market growth to assess their potential.

 

The GE-McKinsey nine-box matrix was developed by McKinsey & Co to help prioritize investments in business units.

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