Opportunity analysis

Opportunity analysis is one of the most important strategic management tasks. It involves scanning of market information to spot various signals which could lead to development of new products, markets or profit sources. Examples of opportunities include: new customers, bankruptcy of competitor, technological innovation, new sources of materials or labour. Opportunity analysis is strongly connected to SWOT analysis and TOWS analysis, it requires also inputs from STEEPLE analysis.

Sources of opportunity

Seven sources of opportunity:

a) existing within a company:

• process needs
• unexpected events
• variances in demand and supply
• market changes

b) existing in society and environment:

• demographic changes
• new knowledge
• changes in a culture

Those sources can create new information, enables to use the exploitation of market inefficiencies and react on the changes in costs and benefits coming from deploying alternative resources or raw materials.

Identification of opportunities

The entrepreneurial opportunities that refer to situations which generate a potential for increasing economic value are usually split into five forms:

• introduction of new products to the market
• implementation of new production method
• opening a new market
• bringing into existence a new type of company
• decreasing of raw material costs

The opportunities are also defined as a gap in the market which create a demand for a new product. The key steps to identify the opportunity:

• entrepreneurial alertness – being prepared to change conditions
• active search – seeking out the relevant information and potential sources
• knowledge of the opportunity domain – having the specific knowledge about innovation and valuable solutions

Gathering a detailed knowledge about market opportunity requires conducting of five separate analysis that are defined as components of this study:

• demand analysis – exploration of the size of demand (incipient, latent, current) and potential market through classificatory models and measurement
• industry analysis – assessment of industrial trends and study of common practices as a bargaining power and treats coming from new entrants
• competitor analysis – gaining the knowledge about goals and next steps of competitors that enables the company to apply new way of using their resources
• segmentation analysis – selection of segments to serve by using attractiveness criteria as market growth potential, entry barriers and the percentage of market dominated by large competitors
• channel analysis – choosing the right channel partners which dispose appropriate skills and knowledge that can improve company performance

Approaches in opportunity analysis

Realism

Realist perspective is the approach grounded in economics. The opportunities are the result of market imperfections and due to that they always exist even if nobody takes the chance. The role of the company owner is to find them and identify the way of generate economic value.

Constructionism

The approach contains different assumptions about the opportunity's nature that is important in identification process. The ambiguous information leads to misunderstanding in interpreting by entrepreneur and causes not objective opportunities. This perspective assumes that the opportunities may not exist until somebody creates them – they are the result of people actions.

Examples of Opportunity analysis

• Developing new products or services to serve the needs of a new customer segment: Companies can use opportunity analysis to identify new customer segments or markets that can be served with existing products or services. For example, a company that specializes in manufacturing computer hardware may have identified an opportunity to develop a line of computer accessories specifically tailored to gamers.
• Exploiting a competitor’s bankruptcy: Companies can use opportunity analysis to identify markets or customer segments where a competitor has gone out of business. For example, if a competitor has gone bankrupt, the company can use opportunity analysis to identify and target new customers who were previously served by the bankrupt company.
• Identifying new sources of materials or labour: Companies can use opportunity analysis to identify new sources of materials or labour that can help to reduce costs or improve efficiency. For example, a company may identify an opportunity to switch from using expensive imported materials to using locally sourced materials that are available at a lower cost.
• Exploiting technological innovations: Companies can use opportunity analysis to identify and exploit new technologies that can help to reduce costs or improve efficiency. For example, a company may identify an opportunity to switch from using manual processes to using automated processes, which can help to reduce labour costs and improve the efficiency of the production process.

Advantages of Opportunity analysis

• Opportunity analysis helps to identify the external environmental factors that can be leveraged to create a competitive advantage.
• It helps to identify opportunities for business expansion and growth.
• It helps to identify new customer segments and markets that can be targeted.
• It allows organisations to identify new products, services and innovations that could be developed.
• It helps to identify untapped resources that can be used to increase efficiency and cost savings.
• It helps to identify potential partnerships or alliances that can be formed to gain a strategic advantage.
• It helps to identify weaknesses in competitors and develop strategies to exploit them.

Limitations of Opportunity analysis

• Opportunity analysis may be subject to bias, as the analysis is based on subjective interpretations of market data.
• Opportunity analysis is limited by the availability and accuracy of data, as well as the researcher's ability to interpret the data correctly.
• Opportunity analysis is an iterative process and requires flexibility to adapt to changing market conditions.
• It is difficult to quantify potential opportunities and to assess the resources needed for implementation.
• Opportunity analysis may not capture the full range of potential opportunities, as it is limited by the scope of the analysis. This can lead to missed opportunities.
• Opportunity analysis requires the availability of resources, such as skilled personnel and investment capital, to realise its full potential.

Other approaches related to Opportunity analysis

• PESTEL Analysis: This approach is used to identify the external factors that may influence the performance of an organization. It focuses on Political, Economic, Social, Technological, Environmental, and Legal factors.
• Five Forces Analysis: This approach is used to identify and analyze the competitive forces in the environment. These forces are Threat of New Entrants, Bargaining Power of Suppliers, Bargaining Power of Buyers, Threat of Substitutes, and Intensity of Rivalry.
• Blue Ocean Strategy: This approach is used to create uncontested market space. It focuses on creating a unique product offering that is not available in the market and creating a competitive advantage.
• Value Chain Analysis: This approach is used to understand the activities that go into creating a product or service. It focuses on understanding the costs, activities and processes that are necessary for the production of a product or service.

In summary, Opportunity Analysis is an important strategic management task that requires inputs from several strategic management approaches such as PESTEL Analysis, Five Forces Analysis, Blue Ocean Strategy, and Value Chain Analysis. These approaches help organizations to identify potential opportunities and create a competitive advantage in the market.

Opportunity analysis — recommended articles

ASTRA analysis — Technology scouting — Distinctive competencies — Strategic decision — Innovative research — Business model innovation — Internal analysis — Strategic fit — Growth potential

References

• Cavusgil, S. T., Kiyak, T., & Yeniyurt, S. (2004). Complementary approaches to preliminary foreign market opportunity assessment: Country clustering and country ranking. Industrial Marketing Management, 33(7), 607-617.
• Gruber, M., MacMillan, I. C., & Thompson, J. D. (2008). Look before you leap: Market opportunity identification in emerging technology firms. Management Science, 54(9), 1652-1665.
• Karlesky M. J., (2015), Identifying Entrepreneurial Opportunities: Cognition and Categorization in Nascent Entrepreneurs, University of Michigan, 6-7, 9-14.
• Kuada J., (2016), A Framework of Market Opportunity Analysis, Adonis&Abbey Publishers Ltd London, 70-83.
• Urwyler M., (2006), Opportunity Identification and Exploitation: A Case Study of Three Swiss-Based Software Companies, The University of St. Gallen, no. 3183, 18-19.

Footnotes

Author: Justyna Kurnik