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Can You Turn Your Threats into Opportunities? By Looking at the Glass Half Full You May Find Significant Growth While your Competition Is Spending Time Mitigating the Threat

By Robert W. Bradford, President & CEO

Events threaten us strategically for three reasons:  They threaten our customers, they threaten displacement of our products or services, or they threaten our competitive position.  Each of these types of threats contains an opportunity for innovation hidden within.

One of the most basic threats we face is one that threatens our customers.  Simply put, some threats will diminish the customers available to us.  In a business-to-business environment, this may be a threat to our customers’ markets. Consumer markets may be threatened by anything that reduces the customers willing to purchase our products or services.  An example of diminished customer base would be a decline of alcohol sales due to legal changes or taste.  The concurrent reduction in capital and supplies purchases by alcohol manufacturers would be a good example of this type of diminished customer base in a business-to-business arena.

The second type of threat is the threat of displacement.  Simply put, this is a change that causes existing customers to meet their needs with an alternate product or service.  A good example of this is the replacement of most film photography with digital photography.

The third type of threat is cost-based.  Sometimes, outside factors may dramatically change the cost structure of an industry, resulting in diminished supply, higher prices or lower quality.  Government regulation of the use of cyanide in manufacturing would be a good example of this, as would the effect of natural disaster destroying significant capacity in a supplier market.

Of these three types of threats, the first is the most difficult to turn into opportunity.  This is because diminished demand is usually a choice made by the customer.  If consumers choose, for example, to drink less beer, your beer-related sales are very likely to decline no matter what you do.  In such situations, it is best to look for the “silver linings” that come with the cloud of diminished demand.  The first is a likely change in the mix of competition – some competitors are likely to go out of business or greatly diminish.  The second, which may be related in some cases, is the possible increase in specialty-related behaviors around your product or service.  For example, if people choose to drink less beer, you may discover sales of specialty beers will gain a greater share of the beer market.

Displacement threats are easier to recast as opportunities.  There are two important types of displacement-driven opportunities you may find.  First, you may become part of the displacing dynamic, in effect destroying your old business in order to participate in the new business.  When Sony embraced CD music as a replacement for cassette tapes, they were destroying their old Walkman Cassette product line in order to maintain a position in the ongoing market for music players.  The second type of displacement-driven opportunity is to exploit the nature of the non-displaced customer.  For example, as transistors replaced vacuum tubes in stereo equipment, a small portion of the market resisted the displacement, preferring the “warmer” sound of vacuum tube based amplifiers.  By becoming a niche player specializing in the preferences of the high-end stereo enthusiast, a tube-based manufacturer could build higher margins and sustainable sales even in the face of a large-scale displacement of the vacuum tube.

Cost-based threats can sometimes be treated this way, as well.  In many markets, the most externally visible changes based on cost can be exploited as opportunities to create visibly specialty-oriented products.  For example, as competing motorcycle manufacturers shifted to alternate materials in the 1970s and 1980s, Harley Davidson leaned the other direction, refusing to replace steel with plastic, for example, and in some cases making design choices that preserved the older look and sound of earlier Harley Davidson models.  While manufacturing costs became somewhat less competitive, the distinctive look and sound of a Harley appealed to the specialty customer who was willing to pay a significant premium for a distinctive motorcycle.

In addition to these examples, there are some basic questions you should ask when examining your threats for opportunities.  First, why is the threat happening?  Is it driven by customer preference, laws, or economics?  How will these changes be viewed by the customer?  Will all customers disappear, or will some stubbornly stick with the old way?  If your industry moves, as a whole, to react to these threats, what advantages might accrue to a company that does not “change with the times”?  Is there an opportunity to better serve a subset of the customer base by going against the flow?

These, and similar questions, can help you to uncover the upside of the threats you face in your business.  If you are interested in seeing how we can help you to profitably adapt to the changes that threaten your industry, please be in touch!  If you are interested in reading more on this topic please click on threats.

Robert Bradford is President/CEO of the Center for Simplified Strategic Planning, Inc.  He can be reached at rbradford@cssp.com.
© Copyright 2012 by Center for Simplified Strategic Planning, Inc., Ann Arbor, MI — Reprint permission granted with full attribution.