Watch out! There’s stuff going on out there that can make or break your business. It’s a rapidly changing world and the changes taking place are outside our direct control – changes in technology, economics and regulations for example. Such changes in the external environment can have dramatic effects on businesses and organisations, indeed on whole industries.
Mobile phones have altered the way we communicate in the last few years, the Internet has opened up global markets. European Union regulations affect a growing number of national governments and every citizen living inside its expanding borders. Change is constant.
To stay ahead of the game we need to anticipate changes, not just react to them. This requires constant ‘scanning’ of the external environment and I liken this to a ship’s radar, constantly looking out for both hazards and help, picking up on its radar screens approaching ships and impending storms in good time. Naturally, we are in touch with the world we live in and we constantly learn about new developments from TV, friends, publications and a host of other sources. But to have an effective 360 º Business Radar, it pays to be more systematic in scanning for opportunities – and threats. This scanning can be called an External Audit (or Environmental Analysis). A PEST Analysis simply invites us to look in four directions: political, economic, social and technological for threats and opportunities. A more thorough approach is to look in eight directions using the ICEDRIPS checklist overleaf, an acronym I invented which I have used with many organisations to help them identify opportunities and threats to their businesses or social enterprises.
The ICEDRIPS checklist
Innovations. Include computer technology and the Internet (of course) but other developments in the biosciences and transportation.
Competition. Not only from rivals but threats from other Forces of Competition such as new entrants and substitute products.
Economics. Includes factors such as inflation, exchange rates, downturns in the industry, public spending etc.
Demographics. Include the ageing of the population, migration, trends in employment, social class etc.
Regulations. Such as new laws, protocols, agreements, conventions and industry regulations eg Ofcom regulations and school inspections via Ofsted.
Infrastructure. Such as telecommunications networks, transport, public services and utilities.
Partners. Strategic alliances with other companies or organisations. (see also Coopetition).
Social trends. Including acceptance of technology, use of leisure time, fashions and changing beliefs.
The factors above are not in order of importance, the checklist merely provides an easy to remember acronym.
The best way to use the checklist is to produce a long list of 100 or so things going on in the world – and things likely to happen. (Imagine all the things you would have to tell a colleague who’d been in outer space for ten years!)
This will produce a generic list, useful for all organisations. The Competition and Partners elements will apply more specifically to the business or organisation in question.
Then add any special external factors relevant to your sector. This might include technical developments, government initiatives or industry matters for example.
Write all of them down and then sift carefully through them for the factors that could represent opportunities and threats for your business.
For example, lowcost international flights (infrastructure) and downloadable music files (innovation) provide opportunities for some enterprises, whilst on the other hand the increasing possibility of litigation (regulations) and new entrants to the market from new European states (competition) represent threats for other businesses.
Depending on your position, changes can produce progress or disaster; changes can be forces for good or bad depending on how they affect you; changes can present either opportunities or threats, depending on how you deal with them. For example, the Disability Discrimination Act in the UK affects architects, web designers, advertisers and other creative businesses. Whilst some will see it as a problem for their businesses, those who are ‘ahead of the game’ will adapt to new requirements quickly and gain competitive advantage.
Remember that there are other Forces of Competition as well as your immediate rivals, including the relative power of buyers and suppliers as well as new entrants and substitute products, that can present either opportunities or threats, depending on how you manoeuvre in the changing competitive environment.
On the other hand, apparent competitors can become cooperators in certain circumstances, transforming rivals into partners and threats into opportunities, using the idea of Coopetition.
Timothy Chan, Chairman of Shanghai based computer games manufacturer Shanda Entertainment, operates in a culture where pirating software is rife. Software pirating was a threat but he turned it into an opportunity when Shanda changed their business model so that clients have to pay to play games online. So the distribution of pirate copies of the software actually encourages more people to log on and become paying customers.
Online Originals took advantage of changes in the external environment (especially Innovation) to launch the very first Internet only ebook publishing venture.
Having used the checklist to identify as many positive and negative factors, the next step is to identify the important few of each, using the 95:5 Rule. It may be just 5% of external opportunities that lead to 95% of your future success. Just one major threat could be twenty times more significant than several other threats identified.
As for threats, anticipate the worst possibilities – then decide how to deal with them or avoid them.
The counterpart of Risk Analysis is Opportunity Analysis. Using similar principles as Risk Analysis, Opportunity Analysis is the technique of assessing which opportunities are most likely to present business benefits, and the possible positive impact of each of them, in order to prioritise the most significant opportunities.
In conclusion, the ICEDRIPS checklist enables you to devise your Business Radar as an early warning system to avoid or defend against threats whilst identifying emerging opportunities before your competitors do.
- External forces beyond our control can affect our businesses positively or negatively.
- We need to anticipate changes, not just react to them.
- Use the ICEDRIPS checklist as a ‘business radar’ to scan the external environment for forces that could affect your enterprise.
- Sift the external environment for the one or two special opportunities – and for potential threats.
- Threats can be turned into opportunities.
- Remember the 95:5 Rule and separate the important few from the trivial many.
- Anticipate the worst possibilities – then decide how to deal with them or avoid them.
- Constantly keep a lookout.