Opportunities and threats

Opportunities and threats are parameters defined in one of the most popular methods of strategic analysis of a company, the so-called SWOT analysis, the name of which is an acronym of the examined indicators - Strengths, Weaknesses, Opportunities, Threats. They are analytical categories filling in particular fields of the SWOT matrix .

Specificity and types of opportunities

Opportunities are positive factors and opportunities (potential or existing in the environment) that favour the development of the enterprise and determine its favourable position in the macro-environment . These are positive, good and satisfying factors, existing now, anticipated and possible in the future opportunities (external positive), processes, phenomena and trends occurring in the environment of the organization, which, if properly used, may become an impulse for its development and will help to weaken the impact of possible emerging threats . Opportunities can also be defined as opportunities generated by external factors towards the organisation, which can be used by the organisation to achieve market and financial effects . A clear distinction should be made between opportunities and the strengths of the organisation (which, of course, are also such a chance for development). An opportunity in strategic management is always something outside the organization, something over which the management has no direct influence, something that can change in an unexpected way without being connected with the activities of the enterprise, which functions in the macro environment, as opposed to the strengths constituting the internal capital of the company and an element of its micro environment . Opportunities, as opposed to threats, are always positive, i.e. they can be used to improve the situation of the company. The management (as well as the employees of the company) should actively seek opportunities that can be used to improve the company's profits . Types of opportunities can be divided depending on the nature of the environmental factor (environment) being their source. The following elements of the company's environment, which are the source of opportunities, are most often distinguished :

• political,
• economic,
• socio-cultural,
• technological,
• legislation,
• environmental,
• ethical.

Political opportunities

These are :

• political authority in favour of economic development,
• a favourable political climate for the company's industry,
• social unrest and armed conflicts outside the country,
• a smooth policy of customs and tax burdens.

Economic opportunities

These are :

• new markets for economic integration,
• the demand for products and services in the industry in which the company operates is growing,
• the restriction of competition on the market, given its relatively low profitability,
• interest rate cuts,
• stable inflation,
• favourable exchange rates,
• the economy is in a phase of stable growth,
• an increase in consumer and investment demand,
• increase in consumer wealth.

Socio-cultural opportunities

These are :

• globalisation,
• social networks,
• changing demographic profile of the population,
• population growth,
• favourable age structure of the population in the market served by the company.

Technological opportunities

These are :

• facilitated access to technology and patents resulting from globalisation of communication channels and cooperation between businesses,
• development of information technologies in the field of design and simulation, increases the possibility of creating new product solutions and reaching new customers,
• almost unlimited access to the Internet and communication technologies,
• automation of production,
• scientific and research activity of enterprises,
• direct support for research and development centres,
• patent protection of new technologies and their implementation in the form of new innovative products.

Legal opportunities

These are :

• legal provisions make it easier to do business,
• liquidation of concessions and permits,
• reduction of trade barriers (customs, tax) in international trade.

Environmental opportunities

These are :

• restrictions imposed on competitors of poisonous environments, improve the position of the company on the market,
• limitations resulting from the environmental protection law have a positive impact on the possibility of selling new innovative products,
• promotional activities and co-financing of renewable energy sources increase demand for the company's products.

Ethical opportunities

These are :

• increasing emphasis on corporate social responsibility enhances the opportunities for companies led by ethically compliant management,
• more and more potential business partners emphasize the important role of trust in companies that adhere to high ethical standards.

Threats

Threats are generated by factors external to the organisation, negative processes, phenomena and trends occurring in the organisation's environment, as well as the risk of limiting the possibility of operating on the market or incurring losses . The risk should be distinguished from the weaknesses of the organization, because its source is an element of the macro environment (while the causes of the weaknesses are located inside the company and have a negative impact on its financial results) . A threat in the understanding of strategic management is always something outside the organisation, something over which the management has no direct influence, something that can change in an unexpected, negative direction without being connected with the company's activities . Threats, as opposed to opportunities, are always negative, it is necessary to monitor the enterprise's environment in order to be able to notice them in advance and take protective and preventive actions against their negative effects . The types of threats can be divided according to the nature of the environmental factor (environment) which is their source. Most often, the following elements of the company's environment are distinguished as the source of threats :

Political threats

These are :

• restriction of economic freedom by state authority,
• negative assessment of the industry in which the company operates by the ruling political party,
• additional tax burden and limitation of the scope of action,
• adverse political climate,
• social unrest in the country reducing the demand for luxury goods and services,
• burdensome customs and tax policy.

Economic threats

These are :

• economic integration increasing the number of foreign competitors on the local market,
• weakening demand for products and services in the industry in which the company operates,
• increase in interest rates,
• less availability of credit,
• higher costs of raising investment capital for the development of the company,
• barriers to entry,
• high inflation rate,
• unfavourable exchange rates,
• decline in economic development, crisis and weak economic situation,
• a fall in the real income of the society,
• a drop in demand for the company's goods,
• innovative activities of the competition, - Increased consumer pressure to lower prices,
• increased competitive pressure,
• embargo on trade with certain countries,
• customs and transport difficulties.

Socio-cultural threats

These are :

• globalization,
• fashion,
• change in the demographic profile of the population,
• population decline (demographic decline),
• increased health and safety awareness among the population, resulting in a decline in demand for our products and services (e.g. cigarettes),
• unfavourable age structure of the population in the market served by the company,
• less susceptibility of people to advertising and typical promotional activities,
• an overall negative attitude towards the assessment of the economic situation.

Technological threats

These are :

• difficult access to technology,
• very high costs of purchasing patents,
• possession of patents for key solutions allowing for the development of innovative products by foreign companies,
• automation of production,
• technological clusters bringing together the majority of competitive companies,
• difficult to obtain support in the form of subsidies for the creation of research and development centres,
• the state does not actively support research and development initiatives and foreign patent protection,
• Rapid technological changes shorten the life cycle of products, thus preventing the company from achieving a fair rate of return on investment in technological development.

Legal threats

These are :

• changing legal regulations make it difficult to conduct business activity,
• the need to obtain new approvals, licenses and permits to operate in the industry,
• greater visibility of trade barriers (customs, tax) in international trade in the industry in which the company operates,
• increase in restrictions resulting from labour law,
• new types of taxes,
• a real threat to the nationalisation of the company's assets,
• less legal protection of constitutional property rights and economic freedoms,
• higher risk related to the activity of force bodies: police, fiscal control, customs control,
• more controls to disrupt business processes.

Environmental threats

These are :

• Increasing environmental pollution increases the operating costs of a company that has to buy expensive filtering equipment and maintain an optimal level of pollution,
• restrictions imposed on companies using the environment, increase operating costs and reduce competitive position in relation to companies from countries where there is no clear pressure to protect the environment,
• restrictions resulting from the environmental protection law negatively affect the sale of traditional products manufactured so far.

Ethical threats

These are :

• increasing emphasis on corporate social responsibility raises the costs of the company's operation and makes it difficult to conduct activities that are inconsistent with generally accepted ethical values,
• pressure on the company to comply with excessive ethical standards.

Limitations in SWOT

Opportunities and threats are two out of four parameters used in the SWOT analysis. However, these parameters have certain limitations that need to be taken into consideration when using them in any strategic analysis. These limitations include:

• The difficulty of quantifying the impact of the opportunities and threats on the business. As they often involve external factors, they can be difficult to measure or predict with accuracy.
• The subjectivity involved in assessing the opportunities and threats. It is often difficult to determine the significance of each one, as it is based on an individual’s subjective opinion.
• The difficulty of predicting how a given opportunity or threat may develop and change over time. This is especially relevant in a fast-changing environment.
• The risk of overlooking important opportunities or threats. It is often difficult to identify all of them, and it is possible to miss out on important ones.

Other approaches related to Opportunities and threats

Other approaches related to Opportunities and threats can include:

• Porter's Five Forces model - which identifies and analyses the bargaining power of buyers and suppliers, the threat of substitutes and new entrants, and the intensity of rivalry among existing competitors in an industry;
• Ansoff Matrix - which is used to analyse and plan strategies for growth;
• PESTLE analysis - which looks at Political, Economic, Social, Technological, Legal and Environmental factors;
• BCG Matrix - which is used to analyse the investment potential of different products and business units.

In summary, the approaches related to Opportunities and threats are the Porter's Five Forces model, Ansoff Matrix, PESTLE analysis and BCG Matrix. Each of them provides a different perspective on the external environment, enabling companies to identify potential risks and opportunities.

Footnotes

Opportunities and threats — recommended articles

Examples of threats — Macro environment analysis — Factors affecting business — Domestic market — Industry environment — External environment — STEEPLE analysis — Environmental factors affecting business — Strategic planning tools

References

• Brad, S., Brad, E., (2015), , Enhancing SWOT Analysis with TRIZ-Based Tools to Integrate Systematic Innovation in Early Task Design, World Conference: TRIZ FUTURE; TF 2011-2014, Romania, Procedia Engineering 131, pp. 616-625.
• Gürel E., Tat M.,(2017),, SWOT Analysis: A Theoretical Review, The Journal of International Social Research, pp.995 (def.) 998-1000.
• Lowy, A., Hood, P., (2014), , The Power of The 2x2 Matrix: Using 2x2 Thinking to Solve Business Problems and Make Better Decision, USA: Jossey-Bass.,pp.12-15.
• McGee, J., Thomas, H. and Wilson, D., (2010), , Strategy: Analysis and Practice, McGraw-Hill, Maidenhead, UK.,PP.5-9.
• Ommani A.R., (2011), , Strengths, weaknesses, opportunities and threats (SWOT) analysis for farming system businesses management: Case of wheat farmers of Shadervan District, Shoushtar Township, Iran, African Journal of Business Management Vol. 5(22), pp. 9448-9454.
• Sammut-Bonnici T., Galea D.,(2015), , SWOT Analysis, Wiley Encyclopedia of Management, Publisher: John Wiley & Sons, Ltd,pp.1-3.
• Sirmon, D.G., Hitt, M.A., Arregle, J.L. and Campbell, J.T., (2010) , The dynamic interplay of capability strengths and weaknesses: investigating the bases of temporary competitive advantage. Strategic Management Journal, 31 (13), 1386-1409.
• Zhao J.J., Zhao.Y, (2010), , Opportunities and threats: A security assessment of state e-government websites, Government Information Quarterly Volume 27, Issue 1, January 2010, pp. 49-56.
• Zhu Y.,Zhong N.,Su H., Ruan X., (2019),, Strengths, weaknesses, opportunities and threats (SWOT) analysis of reinitiation into methamphetamine abusers: qualitative findings from an exploration of methamphetamine abusers in Shanghai, China, General Psychiatry,pp.6-7.

Author: Justyna Wieczorek