QUESTION 3
For the business to survive, maintain growth and expand, top management must protect the
business from potentially harmful influences, and be ready to take maximum advantage of the
challenges and opportunities presented. While it must always accept the need for innovation, top management must still decide on the opportunities it wishes to develop in relation to its resources and those it chooses not to pursue. An effective business strategy depends on the successful management of opportunities and risks. Drucker (Mullins, 1999) suggests that strategy should be based on the priority of maximizing opportunities, and that risks should be viewed not as grounds of action but as limitations on action. While it is not possible to ensure that the right opportunities are chosen, Drucker offers four selection criteria:
•The focus should be on maximising opportunities rather than on minimising risks.
•Major opportunities should be scrutinised collectively and in respect of their
characteristics rather than singly and in isolation.
•Opportunities and risks should be understood in terms of the appropriateness to a
particular business.
•A balance should be struck between immediate and easy opportunities for improvement
and more difficult, long-range opportunities for innovation and changing the character of
the business.
If the business is to be successful, then its organisational structure must be related to its
objectives and to its strategy. The structure must be designed so as to be appropriate to
environmental influences, the continued development of the business, and the management of
opportunities and risks. What, in your opinion, are opportunities and risks? Mention any five opportunity and five risks that an organisation may face and indicate how organisations should respond to all such
challenges. (25 marks)
Opportunities are favorable circumstances or situations that can lead to positive outcomes for an organization. They can arise from various sources such as changes in the market, advancements in technology, or new customer needs. Risks, on the other hand, are potential events or situations that can have negative impacts on the organization's objectives. They can include factors like competition, regulatory changes, or economic uncertainties.
Five opportunities that an organization may face are:
1. Market growth: The organization may identify a new market segment or geographic area where demand for their products or services is increasing. They can respond by targeting this market and expanding their operations accordingly.
2. Technological advancements: The organization may have an opportunity to adopt new technologies or develop innovative products or services that can give them a competitive advantage. They can respond by investing in research and development and adapting their operations to leverage these technologies.
3. Strategic partnerships: The organization may have an opportunity to collaborate with other companies or organizations to achieve mutual benefits. They can respond by seeking strategic partnerships that can help them access new markets, technologies, or resources.
4. Changing customer preferences: The organization may identify shifts in customer preferences or needs that they can address through product or service innovation. They can respond by conducting market research, developing new offerings, and tailoring their marketing strategies to meet these changing preferences.
5. International expansion: The organization may have an opportunity to enter new international markets and expand their customer base. They can respond by conducting market analysis, adapting their products or services to suit local needs, and establishing a presence in the target market through partnerships or acquisitions.
Five risks that an organization may face are:
1. Economic downturn: The organization may face risks associated with economic recessions or downturns, such as reduced consumer spending or decreased demand for their products or services. They can respond by diversifying their customer base, adjusting pricing strategies, and implementing cost-saving measures.
2. Competitive threats: The organization may face risks from competitors entering the market or offering similar products or services. They can respond by continuously monitoring the competitive landscape, differentiating their offerings, and strengthening customer loyalty through superior customer service.
3. Regulatory changes: The organization may face risks from changes in regulations or policies that can impact their operations or increase compliance costs. They can respond by staying updated on regulatory developments, adapting their processes to comply with new requirements, and engaging in advocacy efforts to shape favorable regulations.
4. Technological disruptions: The organization may face risks from rapid technological advancements that can make their products or services obsolete or disrupt their industry. They can respond by investing in research and development, fostering a culture of innovation, and being open to embracing new technologies to stay competitive.
5. Supply chain disruptions: The organization may face risks from disruptions in their supply chain, such as natural disasters, geopolitical events, or supplier failures. They can respond by diversifying their suppliers, implementing contingency plans, and building resilience in their supply chain through inventory management and alternate sourcing options.
Organizations should respond to these challenges by adopting a proactive and strategic approach. They should continuously scan the business environment for opportunities and risks, collaborate across functions and levels to make informed decisions, and develop agile strategies that can adapt to changing circumstances. They should also invest in talent development, innovation, and technology to build capabilities that can support long-term growth and resilience. Additionally, they should establish robust risk management processes, conduct scenario planning, and regularly review and reassess their strategies to ensure their relevance and effectiveness in navigating opportunities and risks.