The Last Frontier of Identifying Opportunities

Whether someone is talking about the expansive prairies and mountains of Alaska or the endless sea of stars in outer space, the phrase “last frontier” is meant to evoke feelings of discovering what is possible in the unknown.

When it comes to ERM, nowhere does the “last frontier” label apply more than with identifying and pursuing opportunities. Historically, ERM’s primary focus has been on managing the downside, but as we’ve discussed in previous articles, this limits the value that ERM brings to the organization.

To deliver the value leaders need, ERM must give attention to the upside as well.

The first two articles in this series discussed ways ERM can turn a negative into a positive. The first explored the low-hanging fruit of over-managed risks, while the second discussed turning risks to strategy into opportunities for success.

This third and final installment is different because it drops “risk” or the “downside” altogether and focuses on the upside only.

This represents the highest level or “last frontier” of ERM.

Before I dig in, pause and ask yourself: are you ready for this different way of thinking? Are you keeping an open mind? Because this could be a true game-changer for your company…

In his book (now available on Amazon) Prepare to Dare: Using Risk Management to Make Maneuverability your Strategic Advantage in a Volatile World, author and former strategic risk manager for LEGO Hans Læssøe defines this as “progressive” level of risk management where:

…the value, capabilities and coherent systematic approaches of the organization’s risk management is exploited as a strategic and business advantage to the company.

This is where ERM morphs into achieving objectives and creating value, which is a must in the current age of mass disruption.

Identifying opportunities in this vein isn’t the easiest thing to do, especially for companies who remain exclusively in that value protection mode. Fortunately, Hans provides some questions to prompt discussion and help companies do this.

The following can and should be modified to reflect your company’s industry, culture, and needs. With that said, the first question is…

  1. Your target is 100. What would have to be true to make the result 200 and can we make this happen?

Questions like this boil down to finding ways to do more with the same resources. This can mean more than money and can include people, time, equipment, or any specialized skills. I think about this specific question as a prompt for business leaders to think about how to stretch goals beyond the initial target.

  1. You have been given X time/resources. What would have to be true to deliver using half of that. The outcome may be smaller, but will it give a better cost/benefit?

Let’s say the goal is to get 100 new customers in three months using 6 people. However, could the same goal be achieved with only 3 people? If not, is gaining only 80 customers with only 3 people more feasible? While this isn’t achieving the original goal, it is achieving a large portion of it with only half the resources.

Help your leaders identify how much money or other resources can be shifted to another initiative supporting a different goal. This gets into cost/benefit, which (in the example above), means that it may make more sense to only go for 80 new customers, so the other 2 unused people can be reallocated to a different initiative.

  1. Your project is closely linked to downstream processes. What would be the best support/service/product we could provide for them, and how can we deliver on that?

This question focuses on projects and any downstream impacts they could have. This may seem like more traditional risk management, but this is about understanding the best way to support other business units and set them up for success. It’s expected that the original business area will do their part to ensure a successful outcome. The opportunities come in when the business thinks outside of their area to help others do better.

These questions are just a sampling – you can find more in Hans’ book Prepare to Dare.

Now keep in mind – we’re not talking about pursuing opportunities at the expense of ignoring risks.

Like so many things in life, balance is needed. In this case, balance between value protection and value creation. Does the upside more than outweigh the down? Can at least some risk be accepted so resources can be reallocated to pursuing the opportunity? Again from Hans:

Balancing the risk and opportunity management in an organization or in project means deliberately and explicitly addressing opportunities, eventually, to the same extent as what is being done to address risks.” (emphasis added)

What balance doesn’t mean is the number opportunities equals the number of risks.

Identifying and pursuing opportunities is nothing new – companies have been doing it throughout time.

Take Disney for example…

In the early ‘80s, the company was reeling from cash flow problems and was nearly broken up by a hostile takeover attempt.

Therefore, new leadership was brought in to address these challenges. Their first question was to figure out what assets the company had that were not being utilized to their full potential.

At this time, the VCR was a fast-growing, novel technology. Despite concerns around licensing an individual to watch a movie in their home (tough to believe with streaming so common now, right?), the new leaders decided to dip into the vault of Disney’s classic movies and start releasing them for sale on VHS tape.

Instead of short-term theatrical releases that only netted one-time cash infusions, releasing titles for home viewing provided the company with much-needed consistent revenue.

These titles would sell for a healthy amount of money for the mid-80s. The classic film Pinocchio was released on VHS in 1985 at a cost of $29.95, or $84 in today’s dollars! By 1992, this opportunity had netted the company over $1.1 billion in revenues. Besides this direct revenue, this also gave customers daily or weekly contact with the brand, leading to increased demand for Disney merchandise, a dedicated cable TV channel, and increased demand for its theme parks, among other positives.

The book Strategic Risk Management: New Tools for Competitive Advantage in an Uncertain Age sums it up nicely when it says:

“Risk managers tend toward discrete risk classifications in their thinking, whether these are brand, ethical, financial, operational, or technology classifications to name a few. Virtually any type of risk can metastasize into a threat or materialize into an opportunity.”

Pursuing opportunities is nothing new, but ERM and tools like Monte Carlo simulation, scenario planning, and others can enable ERM to deliver greater value beyond just protecting the downside.

Companies who neglect this invaluable component and only focus on preventing failure will find themselves in deep trouble as more agile competitors come in to fill the void.

Does your company use ERM and related tools to identify opportunities to create greater value and a competitive advantage?

To share your thoughts on the dynamic and exciting topic, I invite you to leave a comment below.

And if you feel like your company’s ERM remains stuck in the value protection mode and struggles to find ways to identify opportunities, please reach out to discuss where things currently stand, where you want to see them go, and ways to help get you there.

Featured image courtesy of the National Park Service.

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Meet Carol Williams, SDS Founder & Lead Strategist

To our readers:

This blog was launched to provide strategy and risk practitioners with a go-to resource to better guide their efforts within their companies. Thank you for bringing me and my team along to be part of your journey towards better risk management, strategic planning and execution, and overall decision-making. Happy reading!

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