Each organization operates in a particular environment. Environment of the organization embraces external factors that influence or that may influence its operation. The environmental factors comprise of cooperators, competitors, entities shaping principles on the market, but also change of lifestyle of technological progress.
The environment may be analyzed with use of two system of reference: external stakeholders or functional dimensions. The group of external stakeholders embraces: competitors (also those potential), suppliers, receivers, various institutions etc. If you decide to perform an analysis in a functional dimension you need to divide surrounding of the company into spheres, e.g. politics, technology, financial conditions, ecology, etc.
Opportunities are positive tendencies and phenomena in the environment, which while properly applied, may become a stimulate development or weaken threats. An opportunity is a chance for beneficial changes. However, it is not equal in meaning with “unexpected advantage”, because it is a result of tedious searchings and performed analyses, not of an incidence.
Examples of opportunities:
– increase of demand;
– a new group of customers;
– diversification of products;
– introduction into a new market;
– demographic changes;
– company’s takeover;
– expansion of assortment.
In turn, threats are external factors, which are perceived by a company as barriers, difficulties, additional costs, which hinder its development. Threats are those events, which will have negative influence on the company, since no preventive steps are taken up. They do not let opportunities and strong sides of the company to be fully used.
A threat for your company may at the same time pose an opportunity for other entity. The threat may be used by this entity, unless you oppose. However, remember that when you want to explore your opportunities – there is always someone, who this will pose a threat for.
Examples of threats:
– an increase in the price of raw materials;
– new foreign competitors;
– higher share on the market of substitutes;
– loss of the main customer;
– change of the purchasers’ needs;
– change of law;
– low pace of market growth;
– economic crisis.
While performing the analysis of opportunities and threats, you should take into account both the closer (market and competitive) and further business environment (technological, cultural, social, etc.), also called a macro-environment. The closer environment embraces those entities, which an organization cooperates or competes with. In turn, further environment comprises of those factors, which influence the company in a long perspective. One problem present during the analysis may be pose by a question how far you should reach in case of the further environment.
The following list may support you in determining opportunities and threats:
- changes in law or in tax system – whether the changes will influence operation of the company, to what extent, and whether the labor law changes, which bills will be enforced or amended;
- technological progress – how does it influence the company, can it endanger the company, how to use it, which innovations should be expected;
- lifestyle – whether and to what extent the social changes may influence the company, its employee, which qualification will be needed, whether change of age structure of population matters, what is the level of consumption, whether you need to take public or ecological pressure into account;
- politics – whether the political (and geopolitical) situation may influence the company, to what extent, how does stability of the state look like, what donations may be expected, which sectors will be supported, what countries the state is willing to cooperate with, whether privatization takes place;
- competition – who are the competitors, how strong they are, can new ones appear, what is the company’s position in relation to them;
- economic changes – what influence will be exerted by inflation, recession, level of unemployment, GDP growth, etc.
It is sometimes hard to separate an opportunity from a threat, because this is the matter of perspective, and it depends on whether a company can use new conditions, and how it prepares for this. Something that was to be a threat, may become an opportunity if a company deals with it properly, e.g. change of regulations poses a threat for some products, but it will also be an opportunity to introduce something new.