Juggling your business' risks and gains

The Singaporean financial press is littered with stories about the downfall of companies that have resulted from expanding too rapidly or venturing too far from their core business.

Picking the “wrong” opportunities, overstretching resources, both organisational and financial, and taking your eye off existing business can all be damaging consequences of not having a systematic process for analysing and selecting new business opportunities when they occur.

Periods of rapid growth can be just as confronting, and potentially damaging, to a business as an economic downturn. When multiple opportunities appear an executive team needs to give itself the best chance of “picking the winners” and maximising its returns. In order to achieve this, there are some key considerations that executives need to be mindful of when analysing opportunities.

Firstly, how does the opportunity fit with the organisation’s strategy? Will it support the company’s chosen financial imperatives (growth, profit, cash, increased shareholder value or acquisition/divestment)?

Secondly, how does the opportunity leverage existing organisational capabilities and assets?

The further an organisation moves from its current sphere of business operations, the greater the risk to its success. If the opportunity requires a business to develop or bring in new skills, operate in a new geographic location, or trade in a new industry sector then the risks to success increase.

Thirdly, what is the opportunity worth? What return will it bring and over what period? Are there also less tangible benefits associated with the opportunity such as positive publicity, marketing or strategic considerations?

Fourthly, how much of the organisation’s resource will winning and delivering the opportunity consume? Will it require key people’s time, bottleneck resources and/or cash? Is capital investment needed? Will it disrupt current operations? Will it cannibalise any of our existing business?

Finally, what is the timing of the opportunity? Can it be secured next month, next quarter or next year?

An effective way of assessing how new opportunities fit against these considerations is to create an Opportunity Filter. Placing a relative weighting on the criteria listed above and then assessing opportunities against that list enables an executive team to filter and prioritise its opportunities, thus ensuring that available resources are deployed on the most attractive opportunities that have the highest chance of success.

Regular review of this Opportunity Filter will ensure that the relative weighting assigned to the filter criteria remains valid and that the opportunities being developed and pursued are balanced against available resource.

Effective decision making also necessitates the executive team is aligned and providing consistent direction to the organisation, this also key in ensuring the maximum potential of any opportunities is realised.