How To Use Risk As An Opportunity To Boost Profits
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Risk is integral to running a business. As a general rule, the more money you want to make, the greater the risks you need to take. It’s how you manage risk that makes the difference between triumph and disaster.
That doesn’t mean you need to regard risk as a constant threat that you need to avoid as much as possible. Avoid it, and you might miss something. Instead, pay careful attention to the risks facing your business, and you can create opportunities to improve profits.
Here I’ve taken four classic business risks, and explained how you can turn them to your advantage.
1. Supply chain risks What happens if your supply chain breaks and your primary suppliers can’t deliver the goods? This is a very common problem. In a recent survey, which polled more than 500 organizations in 76 countries, over half of the respondents reported a supply chain disruption in the last 12 months.
How would this affect your customers, and, ultimately, your bottom line? Consider too the impact on your company’s reputation. Today’s end users are pushing for more sustainable and transparent supply chains. It’s no longer just about the quality of goods, but also where and how materials are sourced.
Due to the inherent risk in a supply chain, it makes sense to re-evaluate every supplier you have on a regular basis. Drill down beyond your top tier suppliers to scrutinize their suppliers. What you’re looking for is evidence of unmitigated risk and alternatives to your current arrangement.
As you go, the opportunities for improvement will become evident. You may find alternative suppliers offering better value. Or a better sustainability policy, which will enhance your reputation, and help you win more business.
You may discover that you’re putting too much reliance on one supplier, and that you need to diversify to spread the risk. This could be a chance to renegotiate, and get a better deal. Conversely, you may find that you can save money and increase efficiency by consolidating multiple products or services into one supplier.
A thorough audit of your supply chain will help you get a better understanding of your risks, and put firmer measures in place to mitigate them. Used as part of a business continuity strategy, it could help to reduce your insurance costs.
To this end, don’t forget to check whether your tier-one suppliers have their own business continuity strategy in place, should the supply chain be disrupted further down the line.
2. Risk from competitors Are you doing enough to keep hold of your customers? We all know that re-selling to existing customers is easier than winning new customers, but customer loyalty is an elusive treasure these days.
In fact, consumers have more choice and are more used to shopping around to get what they want, than ever before. The risk of losing customers to competitors is a serious threat to both established and startup businesses.
As with supply chain risk, the threat from competitors should make you pay more attention to this aspect of your business.
Look at your competitors objectively, and ask yourself what they do better than you. Learn from their strengths, and don’t be too proud to copy aspects of their best-practice. Similarly, identify what you do better than them– and do more of it.
Social media is a useful tool here. Use it to keep abreast of the issues facing your competitors in real time. This will give you the ability to pre-empt and avoid similar issues and thus gain a competitive advantage.
Also use social media to increase your understanding of customer behavior. There is a vast resource of data you can use to back this up- for example, Google Analytics can give you actionable data on your website visitors. Implement a strong social media content strategy to boost your online presence and position you as an authority.
Some businesses shy away from social media for fear of the adverse comments they might get from customers, but this interaction is a great opportunity for building customer loyalty. Respond to negative comments in a positive way, offer a solution and you will strengthen your customer relations and brand reputation.
Make your social strategy a key method of offering more than your competitors.
3. Risk of losing key personnel Talent shortage is a challenge for many businesses in the age of digital transformation. The young generation is growing used to a gig economy, working on a project-by-project basis, and moving regularly from employer to employer.
In order to retain the talent, you want to keep, you’ll need to look beyond traditional job evaluation and people management practices.
As well as boosting customer confidence in your brand, the right company culture can help you attract and retain top talent. A compelling company culture embraces digital transformation, flexibility, flatter hierarchies, and diversity.
Consider an agile workforce with a more fluid and multi-directional approach to career progression. This can be supported by learning and development opportunities that empower employees to take control of their own career paths.
Reassess your total rewards and employee value propositions, and consider how they can be adapted to suit the individual needs and expectations of a diverse employee base.
Consider flexible working arrangements and a blended workforce of freelance, remote, and full-time employees. This will extend your talent pool, and give you access to diverse skills and capabilities.
4. Compliance risks New compliance risks are emerging every day, such as environmental regulations, privacy laws, and complex global trade rules. Everyone in your organization should be involved in compliance risk management, and know what they should adhere to.
Make compliance risk management part of your company culture. As well as mitigating risk, you will empower employees, boost your reputation, and gain a competitive edge.
Implement a comprehensive and customizable framework to assess and effectively manage compliance throughout your organization. Leverage tools and technology to streamline processes, cutting down audit times and costs.
Give your employees appropriate training to enable them to take ownership of compliance risks and identify and manage them more effectively.
You might not realize it, but you are in the risk business. We all are. No risk, no business. Just remember that the biggest risk points are usually where the biggest opportunities lie.