Watch out! Things are happening that can make or break your business. It is a rapidly changing world and the changes that take place are outside of our direct control: changes in technology, economics and regulations, for example. Such changes in the external environment can have dramatic effects on companies and organizations, indeed entire industries.
Mobile phones have altered the way we communicate in recent years, the Internet has opened up global markets. European Union regulations affect a growing number of national governments and all citizens living within its expanding borders. Change is constant.
Using ‘Radar’
To stay ahead of the game, we must anticipate change, not just react to it. This requires constant “scanning” of the external environment and I liken it to a ship’s radar, which is constantly looking for danger and help, picking up approaching ships and impending storms on its radar screens in good time. Naturally, we are in touch with the world we live in and constantly learn about new developments from television, friends, publications and many other sources. But to have an effective 360º Business Radar, it pays to be more systematic in your search for opportunities and threats. This scan may 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 comprehensive approach is to look in eight directions using the ICEDRIPS checklist overleaf, an acronym I invented and have used with many organizations to help them identify opportunities and threats to their business or social enterprise.
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 also from threats from other competitive Forces, such as new entrants and substitute products.
Economic Sciences. It includes factors such as inflation, exchange rates, industry recessions, government spending, etc.
Demography. Include population ageing, migration, employment trends, social class, etc.
Regulation. Such as new laws, protocols, agreements, conventions and industry regulations, for example Ofcom regulations and school inspections through Ofsted.
Infrastructure. Such as telecommunications networks, transportation, public services and utilities.
Partners. Strategic alliances with other companies or organizations. (see also Cooperation).
Social trends. Including the acceptance of technology, the use of free time, fashions and changing beliefs.
The above factors are not in order of importance, the checklist simply provides an easy-to-remember acronym.
The best way to use the checklist is to produce a long list of 100 or so things that happen in the world and things that are likely to happen. (Imagine all the things you would have to say to a colleague who has been in outer space for ten years!)
This will produce a generic list, useful for all organizations. The elements of Competition and Partners will apply more specifically to the company or organization in question.
Then add any special external factors relevant to your sector. This could include technical developments, government initiatives or industry issues, for example.
Write them all down, and then carefully examine them to find the factors that could present opportunities and threats to your business.
For example, low-cost international flights (infrastructure) and downloadable music files (innovation) provide opportunities for some companies, while on the other hand, the increasing possibility of litigation (regulations) and new entrants in the music market the new European states (competition) represent threats. for other businesses.
Depending on your position, the changes can produce progress or disaster; changes can be forces for good or for bad depending on how they affect you; changes can present opportunities or threats, depending on how you deal with them. For example, the UK Disability Discrimination Act affects architects, web designers, advertisers and other creative businesses. While some will see it as a problem for their business, those who are ‘ahead of the curve’ will quickly adapt to new requirements and gain a competitive advantage.
Remember that there are other Forces of competition besides your immediate rivals, including the relative power of buyers and suppliers, as well as new entrants and substitute products, which can present opportunities or threats, depending on how you maneuver in the changing competitive environment. . .
On the other hand, apparent competitors can become cooperators under certain circumstances, turning rivals into partners and threats into opportunities, using the idea of Coopetition.
Timothy Chan, president of Shanghai-based computer game maker Shanda Entertainment, operates in a culture where software piracy is rife. Software piracy was a threat, but he turned it into an opportunity when Shanda changed its business model so that customers had to pay to play online. Therefore, distributing pirated copies of the software actually encourages more people to log in and become paying customers.
Online Originals took advantage of changes in the external environment (especially innovation) to launch the first Internet-only e-book publishing company.
Having used the checklist to identify both positive and negative factors, the next step is to identify the important few of each, using the 95:5 Rule. Just 5% of outside opportunities may lead to 95% of your future success. A single major threat could be twenty times more significant than several other identified threats.
When it comes to threats, anticipate the worst possibilities and then decide how to deal with or avoid them.
The counterpart of Risk Analysis is Opportunity Analysis. Using similar principles as Risk Analysis, Opportunity Analysis is the technique of evaluating which opportunities are most likely to deliver business benefits and the potential positive impact of each, in order to prioritize the most significant opportunities.
In conclusion, the ICEDRIPS checklist allows you to use your Business Radar tagline as an early warning system to avoid or defend against threats, while also identifying emerging opportunities before your competitors do.
Key points
- External forces beyond our control can affect our business in a positive or negative way.
- 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 may affect your business.
- Scan the external environment for one or two special opportunities and possible 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.
- Be constantly vigilant.