A leader at a prestigious tech company asks candidates how they manage risks during the interview. Though candidates could generally provide textbook responses, the leader sought after responses deriving from experience. Let’s use two of the core risk assessment frameworks in marketing.
Porters Five Forces
Porter’s Five Forces appear to be simple, making it easy to digest and navigate risks; however, its execution is often generalized, backed by only qualitative research (Dobbs, 2014). The approach to this method should be comprehensive and backed by quantitative research (Porter, 2008). Risk offset consists of balancing risks with opportunity and skillsets. Therefore, each element presents both positive and negative risks. Risk should be assessed as a probability instead of a connotation to negative or positive factors where a strategist can look at the possibility of an event, how that event affects the environment, and identify controlled variables they can manipulate to result in an expected outcome. Though the negative risk brings forth awareness, the positive risk brings action. Check out our article, Porter’s Five Forces - Marketing Concepts & Frameworks, for more information on Porter's Five Forces.
In a practical example, a recent client was susceptible to negative risks surrounding rivalry among competitors and the threat of substitute services. More specifically, the negative threat consisted of budgetary constraints to acquire more advanced technologies that its competitors could more easily obtain. These technologies allowed its competitors to increase their volume and provide more services, resulting in a change of culture. The client leveraged the risks as an opportunity by adding more staff to increase the volume and maintain a more familiar culture. Additionally, the client decided to revamp their website to market its culture, increasing revenue and leveraging what appeared to be a negative risk.
SWOT Analysis
The SWOT analysis organizes factors and influences and is often used in conjunction with Porter’s approach. It can be highly beneficial for identifying potential projects. We have also found that the SWOT analysis is used for tactical approaches, perhaps due to its nature and ability to organize factors and influences easily. Nevertheless, this is a useful tool to identify and handle risks. Notice how this specific SWOT diagram presents the risk of an organization’s digital marketing efforts (website) and how those risks present opportunities. This example showcases one way to approach risk. Check our article SWOT - Marketing Concepts & Frameworks for more SWOT analysis.
Considerations - Marketing Risks
Over time, there have been speculations regarding the effectiveness of these approaches, perhaps due to potential oversimplifications. Dac et al. note that some critics consider SWOT superficial or formulaic due to certain outputs. Its segmentation approach can create oversimplification pitfalls, causing outputs that appear to have simple solutions to complex problems. Each framework should have a metrics-driven, comprehensive approach to avoid such pitfalls. Strategists should critically assess each component and ensure they identify risk accurately.
Dobbs, M. E. (2014). Guidelines for applying Porter's five forces framework: a set of industry analysis templates. Competitiveness Review, 24(1), 32-45. https://doi.org/10.1108/CR-06-2013-0059
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review (Vol. 86, Issue 1, pp. 78–137). Harvard Business Review.
Teoli D, Sanvictores T, An J. SWOT Analysis. [Updated 2023 Sep 4]. In: StatPearls [Internet]. Treasure Island (FL): StatPearls Publishing; 2024 Jan-. Available from: https://www.ncbi.nlm.nih.gov/books/NBK537302/
Opmerkingen